Saturday, April 19, 2014

week ending Apr 19

The Fed’s enormous balance sheet in seven charts - Slide Show - The Fed’s balance sheet is approaching $4.1 trillion, a hard number to wrap your head around. It’s a big number, even by Washington standards. It’s twice the government expenditures for all 50 states, equal to the net worth of 56 Bill Gates and could buy 6.5 billion iPhones, notes Vincent Reinhart, chief U.S. economist at Morgan Stanley. How did the Federal Reserve’s balance sheet get so big? What does it mean for markets? Will it lead to crippling inflation down the road? With the Federal Reserve publishing its annual report on its open market operations, it is a good time to look at the balance sheet under a microscope. The balance sheet was expanded under the leadership of former Fed Chairman Ben Bernanke. Many think that the principal task of his successor, Janet Yellen, will be to reduce the size of the Fed’s asset holdings without upsetting financial markets.

Fed's balance sheet logged $84 bln profit last year - (Reuters) - The Federal Reserve logged $84 billion in net profit last year on its massive portfolio of assets, and average income will probably remain higher than before the financial crisis for another decade to come, according to an annual report. The New York Fed's report on its open market operations, released on Thursday, painted an optimistic picture of what could be a thorny political issue for the U.S. central bank: whether all its bond-buying will eventually lead to losses that the government would absorb. But for now, the Fed continues to transfer profits to the U.S. Treasury. "The large size of the SOMA portfolio, its considerable holdings of longer-term securities, and the low interest rates paid on the Federal Reserve's interest-bearing liabilities continued to generate high portfolio net income, which totaled $84 billion in 2013," the report said. Based on current expectations for the portfolio and interest rates, as well as the expectation that the Fed will not sell its mortgage-based securities, it said "net income is projected to remain higher than pre-crisis levels, on average, through 2025 in the current baseline projection and many alternative scenarios."

Annual Reports - Federal Reserve --This report reviews the conduct of open market operations and other developments that influenced the System Open Market Account of the Federal Reserve in 2013. Highlighted are policies and operations conducted at the direction of the Federal Open Market Committee and resulting characteristics of the portfolio of domestic securities. Full report pdf, 49 pages / 1230kb

Yellen: Three Big Questions for the FOMC - From Fed Chair Janet Yellen: Monetary Policy and the Economic Recovery. Excerpts: - Is there still significant slack in the labor market? I will refer to the shortfall in employment relative to its mandate-consistent level as labor market slack, and there are a number of different indicators of this slack. Probably the best single indicator is the unemployment rate. At 6.7 percent, it is now slightly more than 1 percentage point above the 5.2 to 5.6 percent central tendency of the Committee's projections for the longer-run normal unemployment rate. This shortfall remains significant, and in our baseline outlook, it will take more than two years to close. - Is inflation moving back toward 2 percent? I will mention two considerations that will be important in assessing whether inflation is likely to move back to 2 percent as the economy recovers. First, we anticipate that, as labor market slack diminishes, it will exert less of a drag on inflation. However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.10 Second, our baseline projection rests on the view that inflation expectations will remain well anchored near 2 percent and provide a natural pull back to that level. - What factors may push the recovery off track? Myriad factors continuously buffet the economy, so the Committee must always be asking, "What factors may be pushing the recovery off track?" For example, over the nearly 5 years of the recovery, the economy has been affected by greater-than-expected fiscal drag in the United States and by spillovers from the sovereign debt and banking problems of some euro-area countries. Further, our baseline outlook has changed as we have learned about the degree of structural damage to the economy wrought by the crisis and the subsequent pace of healing.

Yellen says jobs remain too weak to raise rates - — Even as several indicators point to better economic times ahead, the chairwoman of the Federal Reserve, Janet L. Yellen, reiterated Wednesday that she expected interest rates to remain very low until the recovery is on a more secure footing and the US economy is more fully utilizing available workers and other resources. In one of her first major public speeches since assuming the top job at the Fed in February, Yellen said that while “the recovery has come a long way” — citing a rebounding housing sector and a resurgent auto industry as examples — a robust and healthy job market still appears to be “more than two years away.” Continue reading below As a result, she said, the central bank believed that “economic conditions may, for some time, warrant keeping short-term interest rates below levels” that are “likely to prove normal in the longer run.” Her speech seemed intended, in part, to clarify her remarks last month during her first news conference as Fed chairwoman that suggested the central bank might begin to lift rates as early as the middle of 2015.In her speech Wednesday, which was given to the Economic Club of New York, Yellen also said that the risk of inflation rising above the Fed’s 2 percent target remains less of a threat than the danger posed by too little inflation. She emphasized that even as the headline unemployment rate, now at 6.7 percent, has been falling, other measures of the job market’s health — such as the number of people forced to take part-time positions because they can’t find full-time work, the still-sizable ranks of the long-term unemployed, and the proportion of the population that has dropped out of the work force entirely — all point to weakness.

Fed’s Lockhart Sees First Rate Hike in Second Half of 2015 - The Federal Reserve will likely not begin raising interest rates until the second half of 2015 as it waits for confirmation that its forecasts for stronger U.S. economic growth bear out, Atlanta Fed President Dennis Lockhart said. “My base case outlook is that we will see growth reconverge at around 3%,” Mr. Lockhart told reporters during a press briefing. “On the basis of that forecast, with its implications for inflation and continuing progress in terms of employment,” he said, the Fed would begin raising interest rates, which have been at effectively zero since Dec. 2008, in the “latter half of 2015.” Mr. Lockhart, who will be a voter next year on the policy-setting Federal Open Market Committee, said he was encouraged by an uptick in the latest inflation figures, which have been running well below the Fed’s 2% target for some time. However, he said the overall inflation outlook was largely static. “The pace of inflation is not declining but we’re not seeing clear firming either,” he said.

Fed’s Fisher Reiterates Support for Winding Down of Bond-Buying Stimulus - Federal Reserve Bank of Dallas President Richard Fisher reiterated his support Wednesday for the central bank’s effort to wind down its bond-buying stimulus program. “I’ll continue to vote for a reduction” in the stimulus program, said Mr. Fisher, who this year is a voting member of the central bank’s policy-setting Federal Open Market Committee. As it stands, he said, there is already “enormous liquidity in the system.” Mr. Fisher has long opposed the Fed’s bond-buying stimulus program, which currently sees the central bank buying $55 billion a month in bonds. It is widely expected to be completed later this year. The Fed’s bond-buying program has aimed to drive faster growth by lowering borrowing costs, which should encourage more spending, hiring and investment. But Mr. Fisher has repeatedly said he believes the stimulus program offers little economic benefit, and has said excessive Fed liquidity has distorted financial markets. Briefing reporters at a seminar hosted by the Texas Public Policy Foundation, a conservative think-tank influential in the state, Mr. Fisher on Wednesday didn’t specify the rate at which he believes the Federal Reserve Bank should reduce its bond purchases. “You don’t go from Wild Turkey to cold turkey overnight,” he said, conceding that the program had helped businesses restructure their balance sheets.

Rosengren: Fed’s Forward Guidance Should Be Linked to Employment, Inflation Data - The Federal Reserve should pledge to keep short-term interest rates near zero until the U.S. economy is within a year of achieving both full employment and 2% inflation, Federal Reserve Bank of Boston President Eric Rosengren said Tuesday. “My personal view is that, ideally, forward guidance should, for the time being, remain qualitative but increasingly be linked to progress in achieving our dual mandate based on incoming economic data,” Mr. Rosengren said in a speech . “In particular, I believe the [Federal Open Market Committee's] forward guidance should be consistent with keeping interest rates at their very low level until we are within one year of reaching full employment and our 2% inflation target–and the guidance could explicitly state that intention,” he said.The Fed has kept the federal funds rate, its benchmark short-term interest rate, near zero for more than five years as the U.S. economy has endured a deep recession and slow recovery. In March, the Fed revised its forward guidance on when it may raise interest rates. It had previously cited 6.5% unemployment as a threshold but now says it expects to wait a “considerable time” after its bond-buying program ends, especially if inflation remains below 2%.

Fed’s Stein: Financial Stability Fits Within Central Bank’s Dual Mandate - The Federal Reserve doesn’t need to expand its focus from its dual mandate to take financial-stability concerns into account, Fed governor Jeremy Stein said Sunday. Mr. Stein, who has expressed worries that the Fed’s easy-money policies could spark instability across the financial system, said his “first instinct” would be not to add financial stability as some sort of separate task for the central bank to carry out. Approaching financial stability through the lens of the Fed’s dual mandate to achieve maximum employment and price stability “will give you a little bit of analytical discipline,” he said during a panel discussion at the International Monetary Fund’s spring meetings. In other words, Fed officials should only take action on financial-stability concerns when there is evidence that the activity in question is threatening to spur higher unemployment or push inflation significantly above or below the central bank’s 2% target. During the panel, Mr. Stein reprised proposal he first unveiled in a speech last month: The Fed should look to the bond market for guidance on when financial excesses are building, and the central bank should raise interest rates to tamp down emerging threats. Specifically, Mr. Stein argues that interest-rate markets can reveal to the Fed signs of excess that could signal future instability. Trouble may be brewing when long-term interest rates are unusually low compared to the outlook for short-term interest rates, or when investors demand small premiums on risky debt such as corporate bonds or mortgage bonds relative to low-risk debt like Treasurys, he said.

The Fed’s macroeconomic model - There has been some comment on the decision of the US central bank (the Fed) to publish its main econometric model in full. In terms of openness I agree with Tony Yates that this is a great move, and that the Bank of England should follow. The Bank publishes some details of its model (somewhat belatedly, as I noted here), but as Tony argues this falls some way short of what is now provided by the Fed. However I think Noah Smith makes the most interesting point: unlike the Bank's model, the model published by the Fed is not a DSGE model. Instead, it is what is often called a Structural Econometric Model (SEM): a pretty ad hoc mixture of theory and econometric estimation that would not please either a macro theorist or a time series econometrician. As Noah notes, they use this model for forecasting and policy analysis. Noah speculates that the Fed’s move to publish a model of this kind indicates that they are perhaps less embarrassed about using a SEM than they once were. I’ve no idea if this is true, but for most academic macroeconomists it raises a puzzling question - why are they still using this type of model? If the Bank of England can use a DSGE model as their core model, why doesn’t the Fed?

Has the Fed Learned Monetary Policy Lessons from the Financial Crisis? - Richard Alford: In the last two years, some economists and even current policymakers have acknowledged that interest rate policy and financial stability are connected. They’ve also admitted external factors can have have a significant impact on US economic performance. However, economic policy itself still ignores these issues. Today, US monetary policy is based on a very narrow interpretation of the Fed’s legal mandate. The central bank pursues price stability and full employment without considering possible negative feedback loops via the financial markets or from abroad. The FOMC is setting monetary policy as if the output gap were solely a reflection of a deficiency in domestic animal spirits. Policy remains focused on promoting demand, i.e., offsetting the unsustainable trade deficit by further encouraging the growth of consumption relative to GDP. This is despite the fact that consumption is already well above historical norms as a fraction of GDP. Furthermore, the almost exclusive reliance on monetary policy implies that asset prices, quality spreads, and the use of leverage are approaching levels last seen just before the crisis of 2007. Policy has not evolved in light of the crisis of 2007 and the recession. Fed policymakers continue to adhere to a narrow and myopic interpretation of the dual mandate. This interpretation allows policy to 1) encourage domestic and global financial instability, and 2) to promote unsustainable patterns of demand and growth. Policy did not solve a problem during the Great Moderation, but rather traded a then-current problem for a future problem. There is a risk that it is doing it again. In the absence of effective regulatory, Dollar and competitiveness policies, the US will experience crises in the future if, Fed policy only reflects international considerations and financial stability concerns at times of crisis.

Thoughts On US Inflation in Light of Yellen's Comments: (charts) Yesterday, Fed Chair Yellen gave a speech in which she highlights three big questions for the Fed, the second of which is "Is Inflation Moving Back to the Fed's 2% Target?" That got me thinking about inflation in general. So, let's take a look at US inflation, starting with producer prices which have three different series: crude, intermediate and finished goods. The chart above shows the path of the total level for each of these data points for the last 34 years -- since the near hyper-inflation of the late 1970s. The first obvious point is that crude goods are extremely volatile, in comparison to intermediate and finished goods. Also note that crude goods have increased at a far higher rate than either intermediate or finished goods, a relationship which is more obvious when we compare these three data series' respective year over year percentage changes for the same period of time: Again, note that crude goods have wide fluctuations whereas intermediate and finished goods' prices are far more stable. Interestingly enough, there isn't a lot of bleed through from producer prices to consumer prices as shown in this chart: Overall producer prices are far more volatile as a result of the cost of raw materials. However, it appears that businesses are able to absorb the vast amount of these price swings and not pass them onto the consumer. Finally, here is CPI, which is currently clearly under control:

Key Inflation Measures Shows Slight Increase, but still Low in March -- The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.6% annualized rate) in March. The 16% trimmed-mean Consumer Price Index also increased 0.2% (2.4% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.4% annualized rate) in March. The CPI less food and energy increased 0.2% (2.5% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for March here. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.7%, and the CPI less food and energy rose 1.7%. Core PCE is for February and increased just 1.1% year-over-year. On a monthly basis, median CPI was at 2.6% annualized, trimmed-mean CPI was at 2.4% annualized, and core CPI increased 2.5% annualized. These measures suggest inflation remains below the Fed's target.

Two Measures of Inflation and Fed Policy - I’ve updated the accompanying charts with yesterday’s Consumer Price Index data from the Bureau of Labor Statistics. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison with the PCE Price Index. The BLS’s Consumer Price Index for March shows core inflation below the Federal Reserve’s 2% long-term target range at 1.66%. The Core PCE price index at the end of the February (the most recent data), is significantly lower at 1.10%. The Fed is on record as preferring Core PCE as its inflation gauge.This close-up comparison gives us clues as to why the Federal Reserve prefers Core PCE over Core CPI as an indicator of its success in managing inflation: Core PCE is considerably less volatile than CPI. Given the Fed's twin mandates of price stability and maximizing employment, it's not surprising that in the past the less volatile Core PCE has been their metric of choice. On the other hand, the disinflationary trend in Core PCE continues to cast doubt on the effectiveness of the Fed's monetary policy.The Bureau of Labor Statistic's Consumer Price Index and The Bureau of Economic Analysis's monthly Personal Income and Outlays report are the main indicators for price trends in the U.S. The chart below is an overlay of core CPI and core PCE since 2000.

Are Speculative Bubbles Good? - Are speculative bubbles good for the economy? With much of the developed world still suffering the after-effects of the great housing and credit bubble, it might sound like a trick question. On Friday, however, at the annual conference of the Institute for New Economic Thinking, which is taking place in Toronto, I moderated a session during which several panelists suggested that bubbles can have an important upside: they help finance innovation and growth. Having spent much of the past twenty years warning about the dangers of speculation, and writing two books about bubbles and their consequences, I felt a bit like Prince Charles presiding at a conference of contemporary architects. Nonetheless, it was an interesting discussion, and I thought it might be worth reviewing some of the arguments that were presented. If you glance at history, you can’t avoid noticing that the development and application of groundbreaking technologies is often accompanied by froth in the financial markets: it was true of railways, radio, and, of course, the Internet. But aren’t the bubbles just a destructive sideshow, sparked by the desire of investors to get in on the next big thing?

Fed Survey: Growth Picks Up Across Most Of U.S. — A Federal Reserve survey shows economic growth picking up across most of the United States over the past two months as bitter winter weather subsided.Ten of the Fed’s 12 regions reported an increase in economic activity, according to the Beige Book survey released Wednesday. In most places, the Fed described the improvement as “modest or moderate.” Only Cleveland and St. Louis reported slower growth.In March and early April, consumers took advantage of better weather to go shopping. Manufacturing expanded across most of the country. Ports and highways were busier. Across most of the country, home prices rose modestly and homebuilding picked up. Tourism was “generally positive.” In several districts, ski resorts reported record years.The Beige Book is based on anecdotal reports from businesses and will be considered along with other data when Fed policymakers meet April 29-30.

Fed Beige Book: District-by-District Summary -- The Federal Reserve’s latest “beige book” report Wednesday said economic conditions improved in most regions of the country and, in some areas, had rebounded from weather-related slowdowns earlier this year. The following are excerpts from a district-by-district summary of economic conditions from mid-February through early April.

Three signs of the Spring spring: One of the things I frequently point out in my "Weekly Indicator" columns is that the high frequency weekly data will show a change in the trend well before it shows up in the monthly reports. Since about mid-March I've been noting is that there has been a "spring spring" in the weekly data. This week that rebound was confirmed in several March monthly reports. First of all, real retail sales shot up 1%, bringing sales to a new all-time high: Next, Industrial production also increased by nearly 1% (+0.7% to be exact) in March: Finally, housing permits held their own in March, despite the general slowdown over the last 6+ months. Although permits were actually slightly down in the South (which is nearly 1/2 of the entire activity for the US) ere's a graph from Bespoke Investment, showing housing permits in the Northeast, that explains why: While obviously winter happens every year, this year's winter in most of the US was unusually cold and snowy, and we now have very strong evidence that this explains most of the rough patch we observed in the previous few months' data.

Forecasting GDP: A Look at the WSJ Economists’ Collective Crystal Ball One of the big economic numbers this month will be the Q1 Advance Estimate for GDP, due out on April 30th. With this morning’s first glimpse of March Retail Sales now in hand, let’s take a look at Q1 GDP forecasts from the latest Wall street Journal survey of economists conducted earlier this month. For some context, Q4 2013 Real GDP went from 3.2% in the Advance Estimate to 2.4% in the Second Estimate to 2.6% in the Third Estimate. And of course it will be subject to an annual revision in July. Here's a snapshot of the full array of WSJ opinions about Q1 GDP. I've highlighted the values for the median, mean (average) and mode (most frequent). As the visualization above reflects, there is a wide range of views on Q1 GDP, even if we exclude the "Cockeyed Optimist" expecting for 4.0%. However, at one decimal point the median, mean and mode are in unison at 1.5%. Flash forward to Q2, and the outlook brightens considerably. The consensus is for GDP to essentially double its annualized rate of change from Q1.

GDP is flawed – just not the way most people think - FT.com -- When economists talk about economic growth they are measuring the change in gross domestic product. Lay criticisms of GDP are often based on the indisputable observation that there is more to life than economics and material goods. GDP omits work done in the home, mostly by women. It values expenditure on war and nursing care on the same basis. It records the despoliation of the environment only by reference to the amount spent despoiling it, and then includes the amount spent to clean it up. It does not tell us how happy we are or how fulfilling are our lives. These objections are valid but largely beside the point. GDP is a measure of the productive performance of the economy. How that productive potential is used is an important subject but a different subject, and only partly an economic question. It is a poor criticism of a thermometer that it does not tell us how comfortable we feel. Yet GDP is not a physical fact like temperature but an artificial construction. Its measurement is conventional and subjective. We should ask whether GDP is a good measure of what it is intended to measure. GDP is gross, so makes no allowance for depreciation. If there is a lot of shortlived investment – as in information technology – output is overstated if you include such expenditure as investment (which Americans are inclined to do) and understated if you write it off as incurred (which Europeans tend to do). GDP is measured at constant prices but what do you mean by the constant price of a piece of software? These different conventions matter a lot to the answers you reach. GDP is domestic, so you measure what is produced within a country’s boundaries regardless of whom it is produced by or for. The combination of gross and domestic means that you include the total value of output, less operating costs incurred in that particular year. So resource producers look richer than they are. And national income accounting cannot handle the financial services sector. Reported output of financial services rose dramatically during the 2008 financial crisis. This nonsensical result arises because the measurement of financial services output is strongly influenced by the margin between average bank lending and borrowing rates, which increased sharply. This problem casts doubt on the validity of reported growth rates both before and after the crisis.

Secular stagnation or secular boom?: The notion that some countries are caught in a long and protracted period of low growth ... has been labeled "secular stagnation". The pessimism that the idea of secular stagnation has created has been reinforced by the notion the potential for emerging markets to grow is becoming weaker. ...Let's start with a simple chart that summarizes the pattern of annual growth in ... advanced and emerging markets...... So stagnation might be the right label for 50% of the world, but accelerating growth is the right label for the other half.And if we look at the engines of growth, in particular investment rates (in physical capital) we can see again the divergence in performance.... Looking at the above charts... Could it be that investment opportunities in emerging markets moved capital away from advanced economies? Not obvious because we know that the explosion in investment rates in emerging markets came in many cases with even larger increases in saving rates and (financial) capital flew away from these countries. In fact, interest rates in the world were trending downwards during this period. And this makes the performance of advanced economies even more surprising: despite a favorable environment in terms of low interest rates, investment and growth declined.

The World According to Modern Monetary Theory – Too often the origins of our economic ills are cloaked by a mystical reverence for some autonomous money spirit. The economists behind Modern Monetary Theory (MMT) seek to lift money’s veil by studying the specific actions that occur as money is created, circulated, and destroyed. For those seeking a grand, unifying sociopolitical economic theory, MMT will disappoint. But as an analytic tool, MMT clarifies who holds genuine power—sovereignty—within society, and how they organize the money system to serve their interests. Unsurprisingly, this is often a story of tremendous cruelty and exploitation. But the revelation that the rules of money are not immutable laws of nature but are instead created and constantly modified by people opens up possibilities beyond the scope of our current political imagination. The questions become: What sort of society do we want? Do we have the physical resources to support that society? And finally, how the hell do we muster the political will to get there?

CBO Projection: Budget Deficit to be Smaller than Previous Forecast -- The Congressional Budget Office (CBO) released their new Updated Budget Projections: 2014 to 2024. The projected budget deficits have been reduced for each of the next ten years, and the projected deficit for 2014 has been revised down from 3.0% to 2.8%. From the CBO: CBO has updated the baseline budget projections that it released earlier in the year. CBO now estimates that if the current laws that govern federal taxes and spending do not change, the budget deficit in fiscal year 2014 will be $492 billion. Relative to the size of the economy, that deficit—at 2.8 percent of gross domestic product (GDP)—will be nearly a third less than the $680 billion shortfall in fiscal year 2013, which was equal to 4.1 percent of GDP. This will be the fifth consecutive year in which the deficit has declined as a share of GDP since peaking at 9.8 percent in 2009....CBO’s estimate of the deficit for this year is $23 billion less than its February estimate, mostly because the agency now anticipates lower outlays for discretionary programs and net interest payments. The projected cumulative deficit from 2015 through 2024 is $286 billion less than it was in February...But if current laws do not change, the period of shrinking deficits will soon come to an end. Between 2015 and 2024, annual budget shortfalls are projected to rise substantially—from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024—mainly because of the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. The CBO projects the deficit will decline further in 2015, and be below 3% of GDP through fiscal 2018. Then the deficit will slowly increase.

US CBO Report Highlights Coming Surge in Debt Service Payments - While the Congressional Budget Office's most recent update of its economic and budget baseline does not offer any startling new insights into U.S. fiscal policy, it paints into even bolder relief one profound fact: the enormous impact that growing debt service costs will have on U.S. fiscal policy in the next decade - and beyond. In its report, the CBO shows annual net interest costs rising from $227 billion in fiscal year 2014 to $400 billion in FY2017 to $694 billion in FY2021 and then to $876 billion in FY2024. According to CBO, for the FY2015 to FY2019 period, the U.S. will pay $2.046 trillion in interest and for the FY2015 to FY2024 period, debt service costs will reach $5.825 trillion. For the FY2015 to FY2019 period, the CBO sees cumulative deficits of $2.930 trillion and for the FY2015 to FY2024 period, it sees cumulative deficits of $7.618 trillion. "Debt service costs have become the 'other' entitlement - and not just the 'other' entitlement but one of the largest entitlements," says Bob Bixby, executive director of the Concord Coalition. "The size of our debt service payments is going to get very large, very quickly. In this ten year period, debt service costs are going to be larger than the defense budget and larger than any other domestic agency. This is really stunning, when you think about it," Bixby said. The CBO report says the soaring levels of debt service costs in the future will be driven by growing debt and rising interest rates.

Interest Rates and the Budget Outlook - Paul Krugman -- The CBO has issued its latest budget update, and as always it’s a very careful piece of work. But there is one thing really worth drawing attention to — not that the CBO is necessarily wrong, but it might be, and at any rate people should be aware of what’s driving the conclusions.Here it is: the CBO’s projection has deficits quite low in the near term, but starting to widen a few years from now. What’s driving that move toward deficit? To an important extent it’s interest payments, which CBO has rising from 1.3% of GDP in 2014 to 3.3% of GDP in 2024. Well, that’s what happens when you have ever-growing debt, right? The more you owe, the bigger the interest payments, and up it spirals, right? Wrong. CBO has debt rising only slightly as a share of GDP, from 74 percent in 2014 to 78 percent in 2024. Essentially all of that rise in interest burden reflects the assumption that the federal government’s borrowing costs will rise sharply as the economy normalizes. But meanwhile we have another careful organization, the IMF, declaring that there is a long-term downward trend in real interest rates, that secular stagnation is a real risk, and that rates not much higher than what we see now may be the new normal. Who’s right? I’m with the IMF, but they and I could be wrong. The key point for now, however, is that the CBO hasn’t exactly found that deficits will start to rise in a few years; it has essentially assumed that they will rise, because it assumes that interest rates will rise much more than many economists, including those at the IMF, believe.

Paul Ryan’s “New” Austerity Budget - America is currently plagued by people making bad personal choices. But, the worst decisions rendered are not those of everyday Americans treading water in order to keep their heads above water, but by politicians like Paul Ryan. Exhibit A: his latest budget. Congressman Ryan’s budget proposals echo the past in that they reprise the policies designed to fight the last ‘war’ (the economic crisis of the 1970s). Not all economic crises are created equally. Some are mostly supply-side (not enough resources, e.g., oil), such as the 1970s. Meanwhile, others are primarily demand-side (insufficient wages to purchase what can be made), such as in the Great Depression of the 1930s and now. Ryan’s budget proposal tenders supply-side solutions (austerity) to deal with a mostly demand-side crisis. It then further doubles-down on the austerity policies introduced in 2011 by Tea Party governors and congressmen. Such prescriptions have been like medieval medicine that bleeds an ailing patient. Then when said patient refuses to fully recover from previous rounds of austerity imposed, the pontiffs of austerity declare the patient’s virtue in question and prescribe a round of flagellation to get ‘his mind right.’Ryan’s budget contains many aspects of Reagan’s budgets, but with even more severe cuts to education, health and research, of which the last generates tomorrow’s innovations and economic growth. To be more accurate, Ryan’s budget combines the harshest Greek-style social cuts of recent years (far more draconian than Reagan’s), but combines those cuts with a Reagan-style ‘military Keynesianism’ that dramatically increases military spending. Ryan’s budget would add nearly a trillion of new military spending over the next decade. One would think we learned our lesson regarding tax cuts for the wealthy and simplistic supply-side nostrums that fueled Wall Street excesses and ultimately the biggest crash of our economy since the Great Depression. But, just as one takes solace that we finally learned from our past errors, like the movie Ground Hog Day, we seemed doomed to awake each morning and try the same failed policies, but only harsher with each incarnation.

The lost promise of progressive taxes -- Conservatives bemoan that not enough people are paying taxes. They insist that a minority of “job creators” and “makers” are underwriting the social benefits that go to the “takers.” Liberals cite the growing concentration of wealth and lament that the rich don’t pay their fair share. In this new Gilded Age, they say, the 1 percent should be paying far more of their annual earnings. Yet neither party seems willing to reform our tax system dramatically. Both avoid talking about the vital link between taxes and government spending. This was not always the case. More than a century ago, during the first Gilded Age, lawmakers embraced progressive taxation. Responding to the massive inequalities between plutocrats and workers, policymakers used graduated taxes to rebalance the tax burden, reminding Americans about their shared duties to each other. As the nation struggles through another period of rising inequality and social dislocation, history shows there are effective ways to address these issues. The reformers’ goal then was to reallocate the burden of financing a bourgeoning modern industrial state. They were not seeking to radically redistribute wealth, as some Tea Party conservatives claim or as some on the left may hope. The Progressives wanted to replace tariffs and excise taxes on alcohol and tobacco — the existing system of indirect, regressive and hidden taxes — with a direct, graduated and transparent tax system. They wanted to create a new fiscal order.

How the IRS Took 27 Hours from Your Life This Year - Today, Tax Day, everyone understands that it is not just paying the taxes that is painful, it is getting together all the information and filling out the forms. The cost is time as well as money, time that could be far better spent. >This is not just an upper- or middle-income problem. Low-income individuals who expect an Earned Income Tax Credit have to file to receive it. In May 2013, scholars at the Mercatus Center estimated the costs of tax compliance to be at least $215 billion a year. A 2008 study by the Taxpayer Advocate Service at the IRS estimated that Americans spend 3.5 million hours a year preparing their individual income tax returns. With 134.6 million filers at the time, this averaged to each individual spending 26.4 hours complying with the tax code. Since the Taxpayer Advocate study was conducted, the tax code has only grown more complex. Wolters Kluwer, the global information services and publishing company, estimated the length of the U.S. tax code to be 67,204 pages in 2007. Their 2013 estimate showed 9 percent growth, to nearly 74,000 pages. Because of the growing complexity of the tax code, taxpayers likely now average more than 27 hours on their individual income tax returns per year.

When Government Pre-Fills Income Tax Returns - Tim Taylor -- As Americans hit that annual April 15 deadline for filing income tax returns, they may wish to contemplate how it's done in Denmark. Since 2008, in Denmark the government sends you a tax assessment notice: that is, either the refund you can receive or the amount you owe. It includes an on-line link to a website where you can look to see how the government calculated your taxes. If the underlying information about your financial situation is incorrect, you remain responsible for correcting it. But if you are OK with the calculation, as about 80% of Danish taxpayers are, you send a confirmation note, and either send off a check or wait to receive one. This is called a "pre-filled" tax return. As discussed in OECD report Tax Administration 2013: Comparative Information on OECD and Other Advanced and Emerging Economies: "One of the more significant developments in tax return process design and the use of technology by revenue bodies over the last decade or so concerns the emergence of systems of pre-filled tax returns for the PIT [personal income tax]." After all, most high-income governments already have data from employers on wages paid and taxes withheld, as well as data from financial institutions on interest paid. For a considerable number of taxpayers, that's pretty much all the third-party information that's needed to calculate their taxes.

TurboTax Maker Linked to ‘Grassroots’ Campaign Against Free, Simple Tax Filing - Over the last year, a rabbi, a state NAACP official, a small town mayor and other community leaders wrote op-eds and letters to Congress with remarkably similar language on a remarkably obscure topic. Each railed against a long-standing proposal that would give taxpayers the option to use pre-filled tax returns. They warned that the program would be a conflict of interest for the IRS and would especially hurt low-income people, who wouldn't have the resources to fight inaccurate returns. Rabbi Elliot Dorff wrote in a Jewish Journalop-ed that he "shudder[s] at the impact this program will have on the most vulnerable people in American society." The letters and op-eds don't mention that, as ProPublica laid out last year, return-free filing might allow tens of millions of Americans to file their taxes for free and in minutes. Or that, under proposals authored by several federal lawmakers, it would be voluntary, using information the government already receives from banks and employers and that taxpayers could adjust. Or that the concept has been endorsed by Presidents Obama and Reagan and is already a reality in some parts of Europe. So, where did the letters and op-eds come from? Here's one clue: Rabbi Dorff says he was approached by a former student, Emily Pflaster, who sent him details and asked him to write an op-ed alerting the Jewish community to the threat. What Pflaster did not tell him is that she works for a PR and lobbying firm with connections to Intuit, the maker of best-selling tax software TurboTax.

The Hedge Fund Managers Tax Break: Because Wall Streeters Want Your Money - Dean Baker - The coming of tax day provides a great opportunity for everyone to focus on their favorite tax break, and there are many from which to choose. However for all the sneaky and squirrelly ways that the rich use to escape their tax liability, none can beat the hedge fund managers' tax break. This is the way the rich tell the rest of us, because they are rich and powerful, the law doesn't apply to them. The hedge fund managers' tax break, which is also known as the carried interest tax deduction, is different from other tax breaks in that it has no economic rationale. With most other tax breaks there is at least an argument as to how it serves some socially useful purpose. That is not the case with the hedge fund managers' tax break. This is simply a case where the rich don't feel like paying taxes and are saying to the rest of us, "what are you going to do about it?" The hedge fund managers' tax break applies to the portion of their earnings that are contingent on the performance of their fund. It's standard for hedge fund managers to be paid a flat fee of 1-2 percent of the money they manage. In addition, they will typically get performance pay that is equal to 10-20 percent of what the fund earns above some threshold. Managers of private equity funds and real estate investment trusts have similar arrangements with the same tax break. The portion of their pay that depends on the fund's performance is the "carried interest." It often runs into the tens of millions or even hundreds of millions of dollars. While this money is clearly and explicitly pay for the work of managing the fund, under the current tax law managers get to have this income taxed at the capital gains rate.

Tax Havens Leave U.S. Filers $1,259 Tab Each, Report Says - U.S. taxpayers would need to pay an average of $1,259 more a year to make up the federal and state taxes lost to corporations and individuals sheltering money in overseas tax havens, according to a report. “Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law -– all supported in one way or another by tax dollars -– but they avoid paying for these benefits,” U.S. Public Interest Research Group said in the report released today, the deadline for filing 2013 taxes. “Instead, ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt,” it said. In total, the U.S. loses $150 billion in federal revenue and another $34 billion in state revenue annually because of money parked in tax havens, the Boston-based consumer advocacy group concluded. That’s almost 5 percent of total federal revenue. The U.S. is projected to raise $3.032 trillion this year, up from $2.775 trillion for fiscal year 2013, according to the Congressional Budget Office.

Holder and Mueller Spent $7.8 Million Taxpayer Dollars on Personal Travel - It has been said that perhaps some Americans are not fully honest on their tax reporting. Some may “forget” to report cash payments here and there, and more than a few will likely exaggerate business and other expenses to score a deduction. It’s a kind of tradition, one that lessens how much tax money the government gets from us Citizens. So I guess in that context Attorney General and head of the Department of Justice Eric Holder, and former FBI Director Robert Mueller taking advantage of a loophole to not report lots of personal travel at taxpayer expense is just some payback on all you cheaters. The Government Accounting Office (GAO) works directly for the Congress. In a recent report to the Senate Judiciary Committee, the GAO reminds that federal agencies are usually required to report trips taken by senior officials on government aircraft unless the trips are classified. The point of this reporting is to make sure officials are not using taxpayer money to fly government planes for personal travel (“non-mission purposes.”) But wouldn’t you know it, the General Services Administration, the executive branch’s kind of one-stop administrative and office manager, created a handy reporting exemption that covers intelligence agencies, even in cases of unclassified personal travel. A CIA official, even if using a government airplane to visit her son at college, would not have to report that misuse to the supposed watchdog agency because of that exemption. The exemption as written by the executive branch never defined what constitutes an “intelligence agency” for this purpose.

Congress Fiddles While Bridges Crumble - It isn’t news that congressional Democrats and Republicans have agreed to spend the time between now and the November elections messaging, rather than legislating. When it comes to domestic policy it has only two real issues on its must-do list: Deciding the fate of 50+ tax breaks that expired last December and figuring out what to do about the Highway Trust Fund which is, not to put too fine a point on it, nearly broke. The expired provisions have gotten most of the attention in recent weeks, but funding for roads, bridges and mass transit faces a more serious problem. The Congressional Budget Office estimates that the trust fund will run out of money within the next few months and projects it may be unable to pay all of its bills after July. This is how CBO put it on February 4: Under CBO’s baseline projections, the highway and transit accounts of the Highway Trust Fund will have insufficient revenues to meet obligations starting in fiscal year 2015. Under current law, the Highway Trust Fund cannot incur negative balances and has no authority to borrow additional funds….As a result, under CBO’s baseline projections, the highway account may have to delay some of its payments during the latter half of 2014. Even though the message was buried in a footnote, that’s about as dramatic as CBO ever gets.

Private ownership of public infrastructure… A doom of inequality - It is happening as I feared. Hilary Russ writes… Private money, public projects: More U.S. states doing deals. The movement has started for private funds to own public infrastructure. This is the entrenchment of inequality, which will be very hard to reverse. So why do I fear private ownership of public infrastructure? From what I saw in Chile… In Chile, private companies own the highways. There are toll booths along the highways. It is almost impossible to get on or off the highway without paying a toll somewhere. The title of the picture you see below is translated, “Don’t be caught without cash.” It is a list of the toll charges along certain routes of the highways of Chile. At roughly 500 Chilean pesos to the US dollar, here are the fees in $USD. Santiago just to the coast (V region) is 300 kilometers/186 miles. The toll charges are $20. This is adding $2.69 to every gallon of gas if your car gets 25 miles/gallon.

Three Expensive Milliseconds, by Paul Krugman -- Four years ago ... Spread Networks finished boring its way through the Allegheny Mountains of Pennsylvania. Spread’s tunnel was ... a fiber-optic cable that would shave three milliseconds — three-thousandths of a second — off communication time between the futures markets of Chicago and the stock markets of New York. . Who cares about three milliseconds? The answer is, high-frequency traders, who make money by buying or selling stock a tiny fraction of a second faster than other players. ... Think about it, spending hundreds of millions of dollars to save three milliseconds looks like a huge waste. And that’s part of a much broader picture, in which society is devoting an ever-growing share of its resources to financial wheeling and dealing, while getting little or nothing in return. How much waste are we talking about? A paper by Thomas Philippon of New York University puts it at several hundred billion dollars a year. What are we getting in return for all that money? Not much, as far as anyone can tell. But if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market. Don’t take my word for it — that’s what the president of the American Finance Association declared in 2008. Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.

The problems of HFT, Joe Stiglitz edition - The most interesting and provocative thing to be written of late about financial innovation in general, and high-frequency trading in particular, comes from Joe Stiglitz. The Nobel prize-winning economist delivered a wonderful and fascinating speech at the Atlanta Fed’s 2014 Financial Markets Conference today; here’s a shorter version of what Stiglitz is saying. Markets can be — and usually are — too active, and too volatile. This is an idea which goes back to Keynes, if not earlier. Stiglitz says that in the specific area of international capital flows, “there is now a broad consensus that unfettered markets are welfare decreasing” — and certainly you won’t get much argument on that front from, say, Iceland, or Malaysia, or even Spain. As Stiglitz explains: When countries do not impose capital controls and allow exchange rates to vary freely, this can give rise to high levels of exchange rate volatility. The consequence can be high levels of economic volatility, imposing great costs on workers and firms throughout the economy. Even if they can lay off some of the risk, there is a cost to doing so. The very existence of this volatility affects the structure of the economy and overall economic performance. The question is: does the same logic, that traders seeking profit can ultimately cause more harm than good, apply equally to high-frequency trading, and other domestic markets? Stiglitz says yes: there’s every reason to believe that it does. HFT is a negative-sum game.

Flash In the Pan: The Colorful Characters of Michael Lewis’s Flash Boys Can’t Save Him From Incoherence - Strange things happen when Wall Street outsources its bargaining and brokering functions to computers. When the big banks created a database in the 90s to phase out the 3,144 county clerks offices responsible for recording American real estate transactions, a large number of transactions stopped getting recorded altogether. This set the stage for all-out anarchy a decade later in roughly 3,144 courtrooms when it emerged that hundreds of thousands of mortgages had been sold to two or three different institutions, none of which seemed to have held on to paperwork to substantiate their claims. After the same big banks introduced the consortium of supercomputers that made bond trading “paperless” in the 70s, at least five of them forgot to chuck their stockpiles of obsolete certificates for more than a decade. When cancelled bonds began flooding into European banks toward the end of the Cold War, collateralizing everything from cocaine deals to Serbian warlord arsenals to whole banks in the former Soviet Union, Citibank was forced to admit that it alone had contracted the disposal of some $110 billion of “worthless” bonds to a suspected Mafia front run by a guy who had died of natural causes shortly after trucking them away. And when complex algorithms began to replace the beefy guys who once made the markets for IBM and Caterpillar on the floor of the New York Stock Exchange… well, it’s not even remotely so interesting a story, but that’s the stock market for you. As Michael Lewis observed in The Big Short, his 2010 bestseller about the financial crisis, “An investor who went from the stock market to the bond market was like a small, furry creature raised on an island without predators removed to a pit full of pythons.”Mr. Lewis’s new book, Flash Boys: A Wall Street Revolt, is the story of small furry creatures. Some of them are Canadian; one is vegetarian. They make high six to modest seven figure bonuses and choke back tears when asked about September 11. Invited to a decadent “old school Wall Street” lobster and Kobe beef feast at an undisclosed lower Manhattan location, they sit “staring at the piles of food like a conquering army of eunuchs who had stumbled onto the harem of their enemy.”

SEC is Kinda Thinking About Doing Something About High Frequency Trading -- Yves Smith - Before you get too excited about the notion that the SEC might actually be saddling up to Do Something about high frequency trading, the agency has roused itself to issue a leak….that it is pondering launching a limited trial to address all of one practice. I’m not making this up. From the Wall Street Journal: SEC officials, including some commissioners, are considering a trial program to curb fees and rebates they say can make trading overly complex and pose a conflict of interest for brokers handling trades on behalf of big investors such as mutual funds. At issue are “maker-taker” fee plans, which pay firms that “make” orders happen—often high-frequency trading firms that specialize in trading strategies designed to capture payments. The plans charge firms that “take” trades—typically big investment firms looking to buy or sell a chunk of stock or hedge funds making bets on short-term price swings. The trial program would eliminate maker-taker fees in a select number of stocks for a period to show how trading in those securities compares with similar stocks that keep the payment system.

NY Attorney General subpoenas HFT firms - The New York Attorney General's office recently sent subpoenas to a number of firms specializing in high-frequency trading, "HFT" for short, according to sources. Six firms received subpoenas and one additional firm received a letter asking for more information. HFT has come under scrutiny over the past several weeks following the release of the Michael Lewis book "Flash Boys". In the book Lewis and others allege that HFT is a way of "rigging" the market and creates an unfair advantage for the firms who specialize in the technique. 'Flash Boys' want to rebuild trust New York Attorney General Eric Schneiderman's office has been investigating high-frequency traders for several months. Schneiderman has personally spoken out about the issues, including penning a commentary in the New York Daily News about HFT on April 3.

The End of Our Financial Illusions - Simon Johnson - Before September 2008 — or at least before 2007, when some of the underlying problems first became more clearly manifest — the prevailing consensus among officials and specialists was that financial innovation was a good thing. In isolated instances, a particular new product might not work out as planned, as happens, for example, with medical innovation. But over all, the consensus went, financial innovation led by the private sector was making the system safer and more efficient. This view was wrong.In its day, this line of thinking justified the legal and regulatory changes that allowed some banks to become very large and to build up a much more complex range of activities in the 1990s and early 2000s, including through various kinds of opaque derivatives transactions. In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.However, the process of reforming the financial system is still at an early stage. The Dodd-Frank financial reforms of 2010 represent a useful start — including the Volcker Rule‘s restrictions on excessive risk-taking — and the recently adopted Basel III framework for capital regulation nudges equity requirements higher. But the world’s largest banks will, by one informed estimate, end up — as things currently stand — with about 3 percent equity and 97 percent debt as the average structure of their balance sheet liabilities. In the United States, if the latest leverage rule is implemented and enforced properly, this will become 5 percent equity and 95 percent debt for the biggest eight banks by 2018. While 20:1 is better than 50:1, this is still not enough equity to assure a reasonable degree of financial stability in the foreseeable future.

“We are in great danger”: Ex-banker details how mega-banks destroyed America - “It no longer matters who sits in the White House,” former Goldman Sachs managing director Nomi Prins writes in her new book “All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.” “Presidents no longer even try to garner banker support for population-friendly policies, and bankers operate oblivious to the needs of national economies. There is no counterbalance to their power.” Prins, who also worked for Bear Stearns, Lehman Brothers and Chase Manhattan Bank, is now a fellow at the think tank Demos and a member of Sen. Bernie Sanders’ Federal Reserve Advisory Council. Salon spoke with Prins about a century of presidential coziness with bankers; Barney Frank’s defense of big banks’ power; and how to “break the alliances” before they “break us.” A condensed version of our conversation follows.

Bank of America: Someone from This Fraud Machine Needs to Go to Jail - Something happened last Wednesday that is eye-opening, on several levels. The Consumer Financial Protection Bureau (CFPB) and the Office of Comptroller of the Currency (OCC) slammed one of the nation’s biggest banks: Bank of America. It turns out BofA, like several other financial giants, is a billion-dollar fraud machine. … Only this latest scheme could have taken money directly from your pocket… and someone needs to be locked up. Why Aren’t These BofA Fraudsters Going to Jail? The CFPB looked back as far as 2001 into BofA’s marketing and sales of “add-on” products. And it wasn’t a surprise to the CFPB (I’ll get to why it wasn’t in a minute) that Bank of America had ripped off their beloved credit card customers by selling them stuff like identity theft protection and credit protection programs, without ever actually providing much of anything. I’m not going to talk about the OCC’s part in this because the OCC has only lately been flexing its puny muscles and was in LaLa Land before, during, and after the financial crisis and is a useless regulator, really just playing tag-along on the shoulders of the CFPB. Anyway, CFPB Director Richard Cordray, a really great – make that a bloody amazing – crusading white-knight regulator said in a call with reporters, “We will continue to be vigilant in pursuit of anyone who deceives or mistreats consumers.” Deborah Morris, the CFPB’s deputy enforcement director, estimated about 1.5 million consumers paid at least $459 million just for identity protection products.

What Happens When ‘All Assets Have Become Too Expensive?’ --A new report from Natixis, the asset management and investment banking division of Groupe BPCE, the second largest bank in France and one of the largest megabanks in the world with over $1.4 trillion in assets, predicts what daredevil voices at the maligned margin of financial analysis have worried about for a while: the likelihood another financial panic. It will be caused ironically by the very mechanisms that are still used to “fix” the last financial crisis: money-printing and asset-purchases by major central banks around the world that unleashed a global flood of liquidity, month after month, for over five years. Most of this practically unimaginable mountain of moolah that has landed in the laps of banks, institutional investors, hedge funds, private equity firms, and other speculators has not been used to boost lending to the private sector in OECD countries, the report confirmed, and thus has not contributed to the recovery of the real economy in those countries. Instead, it has been poured into financial assets and has artificially goosed their valuations.This money sloshing through the system and the persistence of zero-interest-rate policies have driven desperate investors ever further out into “all risky asset classes,” including emerging assets, junk-rated corporate credit, Eurozone peripheral debt, and equities. That buying pressure has inflated their valuations even further. And in the emerging markets, it led to an appreciation of exchange rates.

Defending Kickbacks - The Wall Street Journal reports that the SEC will soon decide (well, sometime this year) whether brokers should be subject to a fiduciary standard in their dealings with clients, as registered financial advisers are today. At present, brokers only need to show that investments they recognize are “suitable” for their clients—roughly speaking, that they are in an appropriate asset class. Not surprisingly, the brokerage industry is up in arms. They want to be able to push clients into the products for which they receive the highest commissions—a practice that (they say) could be more difficult under a fiduciary standard. According to one lobbyist, “a universal fiduciary standard could end up hurting many investors. Lower- and middle-income investors often turn to brokers who are compensated through product commissions, he says, because such clients are less attractive to financial advisers who are compensated based on a percentage of assets under management. Higher costs could prompt some brokers to drop commission-based accounts in favor of more-lucrative accounts that charge a percentage of assets under management, leaving many lower- and middle-income investors without anyone to turn to for investment advice.”

Matt Taibbi: ‘Hands Down’ Bush Was Tougher On Corporate America Than Obama (VIDEO) - Muckraking polemicist Matt Taibbi said that when it comes to the last two presidents, there's no question who did a better job of holding America's tycoons accountable. The former Rolling Stone writer, who joined Glenn Greenwald and company at The Intercept earlier this year, said in an interview Tuesday with Democracy Now! that George W. Bush boasts a much stronger track record of going after corporate America than President Barack Obama. TAIBBI: And this is an important point to make, because if you go back to the early 2000s, think about all these high-profile cases: Adelphia, Enron, Tyco, WorldCom, Arthur Andersen. All of these companies were swept up by the Bush Justice Department. And what’s interesting about this is that you can see a progression. If you go back to the savings and loan crisis in the late '80s, which was an enormous fraud problem, but it paled in comparison to the subprime mortgage crisis, we put about 800 people in jail during—in the aftermath of that crisis. You fast-forward 10 or 15 years to the accounting scandals, like Enron and Adelphia and Tyco, we went after the heads of some of those companies. It wasn't as vigorous as the S&L prosecutions, but we at least did it. At least George Bush recognized the symbolic importance of showing ordinary Americans that justice is blind, right?

Trillion-Dollar Firms Dominating Bonds Prompting Probes - Bill Gross and Larry Fink manage a $3 trillion pile of bonds -- an amount almost as big as Germany’s economy. Their firms, Pacific Investment Management Co. and BlackRock Inc. (BLK:US), doubled holdings since 2008, outpacing the market’s growth of 50 percent. Some of the largest hedge-fund firms, including Bridgewater Associates LP and BlueCrest Capital Management LLP, have also more than doubled their investments in debt, data compiled by Bloomberg show. At the same time, Wall Street banks are shrinking their stakes in bonds, Federal Reserve data show. The lopsided bond market has caught the attention of the U.S. Securities and Exchange Commission. Not only is the SEC examining whether the biggest players get preferential prices and access because of their influence, it’s also worried about what happens when the five-year bond rally ends as U.S. policy makers prepare to raise interest rates. Story: Pimco's Bill Gross Picks Up the Pieces Related: Gross Loses to Goldman in Hot Bond StrategyGross Prods El-Erian to Explain Reason for Pimco ExitVideo: Has Pimcoâ€™s Bill Gross Gone Off the Deep End? “It’s going to be interesting to see who’ll take the other side of the trade if there’s a meaningful sell-off, which presents a huge risk,” said “We’re much closer to the end of the rally, that’s for sure.”

C.E.O. Pay Goes Up, Up and Away! - On Sunday, The New York Times published its annual list of the compensation of the top executives at the 100 largest publicly traded American companies. (The survey is conducted by Equilar for The Times.) Topping the list, as he often has, was Larry Ellison, the chief executive of Oracle, who, despite being the world’s fifth-wealthiest person, raked in an additional $78.4 million in 2013, a combination of cash, stock and stock options. That was more than twice as much as the second and third place finishers, Robert Iger of Disney and Rupert Murdoch of 21st Century Fox. Not that they had anything to complain about, at $34.3 million and $26.1 million respectively.The Times reported that the median compensation for C.E.O.’s in 2013 was $13.9 million, a 9 percent increase from 2012. The Wall Street Journal, which did its own, smaller survey a few weeks earlier, described the 2013 pay increases as representing “moderate growth.” Nell Minow, another longtime critic of corporate governance and executive compensation practices, told me that the last time she harbored hope that executive pay might be brought under control was 1993. That was the year that Congress passed a bill capping cash compensation at $1 million. But the law also exempted pay that was based on “performance.” Two things resulted. “Immediately, everybody got a raise to $1 million,” said Minow. And, second, company boards began setting performance measures that were easy to clear — and larding pay packages with huge stock option grants.

A Striking Picture of Pay and Deregulation in Finance - I’m crunching on a longer piece on “rents” versus merit in US high-end salaries and their role in our uniquely high levels of inequality (“rents” here means being paid above your marginal product, or your individual contribution to your firm’s bottom line). Anyway, for good and I think obvious reasons, a strain of this literature focuses on the finance sector, where there’s very compelling evidence of highly inefficient rent seeking. A reasonable, if not naïve, question then becomes: aren’t the financial regulators supposed to prevent this? Sure, but they’ve been outgunned by lobbyists and seemingly captured by the finance industry, and these factors too are major contributors to rents. Anyway, I stumbled on this figure below, from a very insightful paper by Philippon and Reshef. The figure plots an index of financial deregulation against relative pay in the industry (an increase in the deregulation index implies looser regulation).

Pay for Performance? It Depends on the Measuring Stick -- Year after year, as executive pay continues its inexorable climb, it’s amusing to watch corporate directors try to justify the piles of shareholder money they throw at the hired help. Check out any proxy filing for these arguments, which usually center on how closely and carefully the executives’ incentive compensation is tied to the performance of company operations. But pay for performance is only as good as the metrics used to determine it. And as a recent study shows, some metrics — including the most popular — are downright ineffective at motivating executives to create shareholder value.As usual, the numbers are staggering: The median compensation for C.E.O.s at the 100 largest companies that have filed so far was $13.9 million, according to the Equilar 100 C.E.O. Pay Study, conducted by Equilar, an executive compensation data firm. That’s up 9 percent from 2012. But investigating the basis of these amounts takes some digging. Consider Oracle, whose chief executive, Lawrence J. Ellison, received $78.4 million, placing him atop our 2013 pay list. Only by reading the company’s proxy do you learn that Oracle determined its incentive compensation — meaning most everything but salary — based on growth in what it calls “non-GAAP pretax profit.”

Are We Headed for a Credit Market Crash? - In a series of speeches, Federal Reserve Governor Jeremy Stein emphasized the importance of financial stability concerns in monetary policy-making. But how does one measure whether threats to financial stability are lurking? Put differently, can we know that there is a credit bubble about to burst? In his speeches, Stein cites the work of two Harvard Business School professors, Robin Greenwood and Samuel Hanson. Their research argues that a good indicator of credit market overheating is the share of all new corporate debt issues coming from low-grade issuers. This measure is based on the quantity of credit issued, not just interest rates. Others focus exclusively on credit spreads, or the interest rate differentials between, say, junk and investment grade firms. Greenwood and Hanson argue that quantities of credit issued by low-grade versus high-grade firms add a lot of power when predicting credit market crashes. So how big is the risk of a credit market crash today? Robin and Sam were nice enough to send us the updated data through 2013. This chart shows the high yield share of corporate debt issues. Or in other words, the fraction of all corporate debt issues by high yield (or junk) firms:

Depositor Discipline of Risk-Taking by U.S. Banks - NY Fed - The recent financial crisis caused the largest rise in the number of bank failures since the unprecedented banking crisis of the 1980s and early 1990s. This post examines how depositors responded to the amplified risks of bank failure over the last three decades. We show that uninsured depositors discipline troubled banks by withdrawing their funds. Focusing on the recent financial crisis, we find that banks experienced an outflow of uninsured time deposits after the near-failure of Bear Stearns and bankruptcy of Lehman Brothers. This depositor risk sensitivity subsided after the Federal Deposit Insurance Corporation (FDIC) introduced the Transaction Guarantee Account program in October 2008, which raised the maximum deposit insurance limit from $100,000 to $250,000.

The Liquidity Stress Ratio: Measuring Liquidity Mismatch on Banks’ Balance Sheets -- NY Fed - Liquidity transformation—funding longer-term assets with short-term liabilities—is one of the main functions that banks provide. However, this liquidity mismatch exposes banks to liquidity risk. This risk was clearly demonstrated in the 2008 financial crisis when banks’ funding liquidity dried up and their market liquidity evaporated. Since the crisis, liquidity risk management has become one of the top priorities for regulators, and new liquidity requirements, such as the Liquidity Coverage Ratio and the Net Stable Funding Ratio, have been proposed in Basel III, apart from conventional capital requirements. In this post, we present a new measure of liquidity mismatch—the liquidity stress ratio (LSR). We analyze how it has evolved for large banks, and study the correlation between the LSR and key bank characteristics over time.

Big banks lend to corporations over consumers - Every additional dollar, and then some, that the nation's biggest banks have lent out in the past year has gone to corporations. So, while corporate lending was up by 7%, or $101 billion, from a year ago, that masked the fact that consumer lending at the nation's five biggest lenders has continued to drop, by $12 billion in the past year alone. Economists have been waiting for an increase in lending after the credit crunch that, in part, brought on the recession. And the fact that companies are borrowing more could signal that they have become more confident in the economy and are looking to raise dollars so they can do more hiring or somehow expand their business. But others worry about how lopsided the volume of new loans has become. The lack of an increase in consumer credit could be a hangover from the financial crisis, which was mostly caused by an avalanche of consumer loan defaults, mostly from not being able or willing to pay their home loans. Corporate lending did not suffer the same losses.This may have led banks to conclude that lending to corporations is not nearly as risky as lending to individuals. Jamie Dimon, CEO of JPMorgan Chase (JPM), told analysts during a recent conference call that individuals who either have good credit or are buying a very expensive house are able to get mortgage loans. But, he said, his bank and others are still reluctant to make any home loan with "any hair on it."

Unofficial Problem Bank list declines to 530 Institutions This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for April 11, 2014. There were three removals this week from the Unofficial Problem Bank List. After removal, the list holds 530 institutions with assets of $170.8 billion. A year ago, the list held 786 institutions with assets of $289.4 billion.Actions were terminated against Riverview Community Bank, Vancouver, WA ($803 million); The National Bank of Cambridge, Cambridge, MD ($190 million); and Pikes Peak National Bank, Colorado Springs, CO ($80 million).The Federal Reserve issued a Prompt Corrective Action order against NBRS Financial, Rising Sun, MD ($207 million), which has been operating under a Written Agreement since February 2010. Next Friday, we anticipate the OCC will release its enforcement action activity through Mid-March 2014.

Quelle Surprise! Ginnie Mae Says Bank of America Has Lots of Servicing Documents Missing; MERS Also in Hot Water - Yves Smith -- An article by Kate Berry in American Banker earlier this week hasn’t gotten the attention it deserves. Anyone who was paying attention to the mortgage beat in 2010 through 2012 knew that mortgage securitization originators and servicers were playing fast and loose with critical documents like mortgage notes because they couldn’t be bothered to observe their own contracts and transfer them to the mortgage trust as stipulated. But exposing that threatened to blow up the mortgage-industrial complex. So the Obama Administration and the major regulators labored mightily to engineer a cover-up settlement, which included all sorts of pious promises by servicers to Do Better. Two years later, what do we find? Bank of America, one of the biggest miscreants, wants to exit servicing mortgages guaranteed by Ginnie Mae. One thing that may not be obvious to most readers is that servicing those mortgages should be a no-brainer. Unlike subprime mortgages, where each deal had slight (or sometimes not so slight) variations in terms, Ginnie Mae has a handbook that servicers are supposed to follow. Yet with crystal-clear guidelines, plus two years post the state-national settlement to clean up its operations, Bank of America has so many important documents missing that Ginnie Mae won’t let them sell their servicing operations. From American Banker:Ginnie Mae has halted the transfer of mortgage servicing rights from Bank of America (BAC) to a nonbank servicer because the bank is missing documents such as recorded mortgages and title policies on the underlying home loans.Ted Tozer, the president of Ginnie Mae, says he has held up the transfer of servicing rights by B of A “for an extended period” because the bank is not complying with agency’s guidelines that require all mortgage documents be delivered to custodians in a timely manner..

Ginnie Mae To Big Banks: Show Us Your Mortgages. But Can They? - The Government National Mortgage Association (Ginnie Mae) recently discovered that Bank of America is missing key documents relating to mortgages the bank services for it, Kate Berry reported for National Mortgage News. Because Bank of America is missing so many documents, Ginnie Mae put a planned sale of mortgage servicing rights on hold. While Bank of America assesses the problem, Ginnie Mae has decided to take inventory more broadly, Berry reports: "...Ginnie Mae, is trying to assess the magnitude of the problem of missing documents. Ginnie now plans to send letters this month to about 10 of the largest mortgage servicers – including B of A, JPMorgan Chase and Wells Fargo – that take part in a special program to expedite servicing transfers." Wells Fargo services the largest face value of mortgages for Ginnie Mae, with nearly $420 billion. According to Wells Fargo spokesman Tom Goyda, "Loans serviced for Ginnie Mae are about 23 percent of our total servicing portfolio." JPMorgan Chase services the next largest slice of Ginnie Mae mortgages, at nearly $157 billion. Bank of America is third at $118 billion. What will Ginnie Mae learn and what will it mean for the likes of Wells Fargo, JPMorgan Chase and Bank of America? Only time will tell, but the news could be ugly all around.

Bank of America's mortgage crisis costs become a recurring problem (Reuters) - Bank of America Corp's (BAC.N) mortgage pain is lasting longer than expected, leading some investors to wonder if the massive expenses being incurred have become a recurring cost of doing business instead of being dismissed as one-time items. The bank on Wednesday posted $6 billion of litigation expenses for its first quarter, far exceeding the $3.7 billion of settlement costs that investors had previously known about. Since the 2008-2009 financial crisis, Bank of America has logged some $50 billion of expenses for settlements of lawsuits and related legal costs, before taxes. Without those charges, its income before taxes would have been about three times higher. The expenses stem mainly from settlements linked to mortgages that Countrywide Financial Corp made during the housing boom and sold to investors. Bank of America bought Countrywide in July 2008, just as the mortgage collapse was triggering the crisis. Bank of America has resolved most of the outstanding litigation with investors, and it is now focusing on settlements with the U.S. Department of Justice and other enforcement agencies.

Wells Fargo, JPMorgan Vexed by Low Demand for Mortgages - Slack demand for home loans continued to drag on earnings at Wells Fargo & Co. and JPMorgan Chase as the two largest U.S. mortgage lenders grappled for pieces of a shrunken market. Even as interest rates hovered near historically low levels, new home loans tumbled 67 percent to $36 billion in the first quarter at San Francisco-based Wells Fargo, the biggest originator. JPMorgan posted a 68 percent drop to $17 billion, and the bank predicted it would lose money on mortgage production for the full year. Both lenders are paring staff to keep expenses in line with demand for loans, which has waned as investors and cash buyers dominate some sales. New York-based JPMorgan said jobs at its mortgage business declined 14,000, or 30 percent, since the start of last year. Wells Fargo set plans to cut 1,100 positions in the most recent three months, which ranked as its worst first quarter for mortgage revenue since 2008. \ “We’re seeing tight housing inventory in some markets, and the purchase market was affected adversely by the severe weather.” JPMorgan’s first-quarter net income dropped 19 percent to $5.27 billion, or $1.28 a share, the bank said in a statement. Mortgage revenue plunged 42 percent to $1.57 billion as higher interest rates curtailed refinancing. Mortgage banking income, which includes originations and servicing, fell 46 percent to $1.51 billion at Wells Fargo. The bank still posted a 14 percent increase in first-quarter earnings, to $5.89 billion, as fewer customers missed payments.

Lending Drops to 17-Year Low as Rates Curb Borrowing: Mortgages: U.S. mortgage lending is contracting to levels not seen since 1997 — the year Tiger Woods won his first of four Masters championships — as rising interest rates and home prices drive away borrowers. Wells Fargo & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that’s part of an industry-wide drop off. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington. Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40 percent has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association. “Banks large and small are going to have to adapt to a new reality because mortgage origination volumes going forward aren’t going to support the big businesses they’ve had in place for the last few years,”

The death of mortgage lending --Over the past couple of weeks, you may have been given the false impression that Richard Cordray and his colleagues at the Consumer Financial Protection Bureau are working to destroy the US mortgage market. Likewise, you may have the false impression that various consumer groups and advocates are making mortgage lending unattractive as a business for banks and non-banks alike. But the truth of the matter is that even if Richard Cordray was back in Ohio, where he formally served as Attorney General — a reality where the CFPB and said housing groups didn't exist — the US mortgage market would still be in trouble. Were there no CFPB or Dodd-Frank Wall Street Reform and Consumer Protection Act, banks and non-banks alike would be backing away from the mortgage business. The significant withdrawal of players such as Nationstar and Bank of America from retail lending, and the collapse of the mortgage wholesale and correspondent markets, is just the start of a more generalized retreat of capital from residential mortgage lending that has its origins long before 2010, before Dodd-Frank passed and the CFPB was created. The simple reason for this statement is that the mortgage business, as it stands today, is not particularly profitable, in a nominal sense. If you actually take the time to look at mortgage lending based on a risk-adjusted return on capital, it quickly becomes clear that no rational investor would want to put capital behind a standalone lending operation.

Real-Estate Crowdfunding Finds Its Footing - WSJ.com: Dr. Medley's springboard into real-estate investing was supplied by a process known as crowdfunding—the sale of shares in a venture, in this case real-estate projects, to hundreds or even thousands of individual investors. Dr. Medley has invested in 15 properties, with a minimum of $5,000 in each. "Being able to invest relatively small amounts of money into different real-estate ventures was appealing" as a way of limiting risk, he says. Clearly, other real-estate investors feel the same way, with new websites springing up that allow individuals to buy stakes in everything from self-storage facilities to luxury hotels. "The interest is huge," says Scott Whaley, president of the National Real Estate Investors Association in Cincinnati. "There's massive demand, both from entrepreneurs who want to get access to capital, and from people who want to invest capital." Focused Investments Crowdfunding has caught on in a variety of industries, spurred in part by regulatory changes that make it easier for such businesses to look for investors. In real estate, Mr. Whaley says, the key advantages are the ability to access more deals, invest smaller sums and connect directly with developers to ask questions and research deals. Unlike real-estate investment trusts, crowdfunding also allows people to invest in particular buildings.

Mortgage Reform Is Worth the Small Extra Cost to Borrowers -- In the current housing financing system, shareholders and management of Fannie Mae and Freddie Mac got the considerable profits in good times, and when the housing market collapsed, taxpayers were stuck with the bill — a $190 billion tab in the recent crisis.A Senate proposal for a new system would have private investors rather than taxpayers take on most of the risks and returns involved with mortgage lending — if a misguided obsession with the small additional cost to borrowers doesn’t sink the reforms. The proposal put forward recently by Senators Tim Johnson, Democrat from South Dakota, and Michael Crapo, Republican from Idaho, who lead the Senate banking committee, would bring about a housing finance system driven first and foremost by market incentives rather than by government dictates. There are many pieces to the proposal, including support for affordable housing and an innovative approach by which to reward financial firms that serve a broad range of customers and penalize those that do not. But reducing the government involvement in housing finance and bringing back private capital is at the heart of the bill, which would end the anomalous situation in which the housing finance giants Fannie Mae and Freddie Mac are private companies that earn enormous profits but remain under the control of a government regulator.

MBA: Mortgage Applications Increase -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - Mortgage applications increased 4.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 11, 2014. ... The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.47 percent from 4.56 percent, with points decreasing to 0.32 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 73% from the levels in May 2013. With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 18% from a year ago. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.

Weekly Update: Housing Tracker Existing Home Inventory up 7.8% year-over-year on April 14th - Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for February). However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2013 finished up 2.7% YoY. Inventory in 2014 (Red) is now 7.8% above the same week in 2013. Inventory is still very low, but this increase in inventory should slow house price increases.

Home Sellers’ Asking Prices Hit Five-Year High - If housing demand has softened, someone forgot to tell home sellers. Sellers have pushed asking prices on their homes to a five-year high, but they are facing slightly more competition than they were one year ago. Data from the website DeptOfNumbers.com, which tracks inventory and listing price information for 54 large metro areas, shows that inventories are up 7% from a year ago. A few key takeaways:

—It’s now clear that for-sale inventories probably hit bottom last year after sustained declines that began in 2010.

—While the year-on-year increase through April is large compared to the last few years, the increase is coming off of the lowest levels of for-sale homes in at least a decade.

—Yes, there are signs all around that demand has cooled over the past six months, particularly in some of the most volatile housing markets across the U.S. southwest. But the national picture shows that home supplies are still relatively low. The number of homes for sale is still 15% below the level of two years ago.

Housing Bubble 2.0 Veers Elegantly Toward Housing Bust 2.0 - They’re not even trying to blame the weather this time. “Housing affordability is really taking a bite out of the market,” is how Leslie Appleton-Young, chief economist for the California Association of Realtors explained the March home sales fiasco. “We haven’t seen this issue since 2007.” In Southern California, the median price soared to a six-year high of $400,000, up 15.8% from a year ago, as San Diego-based DataQuick reported. It was the 24th month in a row of price increases, 20 of them in the double digits, maxing out at 28.3%. Ironically, prices per square foot are increasing fasted at the bottom third of the market (up 21%), versus the middle third (up 15.9%) and the top third (up 14.3%). Ironically, because at the bottom 65%, sales have collapsed. People, wheezing under the weight of their student loans and struggling in a tough economy where real wages have declined for years, hit a wall. Private equity firms and REITs, prime beneficiaries of the Fed’s nearly free money, gobbled up vacant homes sight unseen in order to convert them into rental housing, and in the process pushed up prices - exactly what the Fed wanted. But now high prices torpedoed their business model, and they’re backing off. So sales of homes priced below $500,000 plunged 26.4%, and sales of homes below $200,000 collapsed by 45.7%.These aren’t poor people who stopped buying them but two-income middle-class families who’ve been priced out of the market. Thanks to the Fed’s glorious wealth effect, however, sales of homes ranging from $500,000 to $800,000, increased by 2.9% from a year ago, and sales of homes above $800,000 increased by 5.4%. In total, 35% of the homes sold for $500,000 or more. But combined sales, due to the collapse at the low end, dropped 14.3% from a year ago to 17,638, the worst March in six years, and the second-worst in nearly two decades.

California March Home Sales - An estimated 32,923 new and resale houses and condos sold statewide in March. That was up 28.2 percent from 25,680 in February, and down 12.8 percent from 37,764 sales in March 2013, according to San Diego-based DataQuick. Last month’s sales were the lowest for a March since 2008, when 24,565 homes sold – a record low for the month of March. California’s high for March sales was 68,848 in 2005. Last month's sales were 23.9 percent below the average of 43,251 sales for all months of March since 1988, when DataQuick's statistics begin. California sales haven’t been above average for any particular month in more than eight years. Of the existing homes sold last month, 7.4 percent were properties that had been foreclosed on during the past year. That was down from a revised 8.0 percent in February and down from 15.0 percent a year earlier. California’s foreclosure resales peaked at 58.8 percent in February 2009. Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 7.4 percent of the homes that resold last month. That was down from an estimated 9.3 percent the month before and 18.7 percent a year earlier.

Housing Starts at 946 Thousand Annual Rate in March -- From the Census Bureau: Permits, Starts and Completions: Privately-owned housing starts in March were at a seasonally adjusted annual rate of 946,000. This is 2.8 percent above the revised February estimate of 920,000, but is 5.9 percent below the March 2013 rate of 1,005,000. Single-family housing starts in March were at a rate of 635,000; this is 6.0 percent above the revised February figure of 599,000. The March rate for units in buildings with five units or more was 292,000. Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 990,000. This is 2.4 percent below the revised February rate of 1,014,000, but is 11.2 percent above the March 2013 estimate of 890,000. Single-family authorizations in March were at a rate of 592,000; this is 0.5 percent above the revised February figure of 589,000. Authorizations of units in buildings with five units or more were at a rate of 370,000 in March.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in March (Multi-family is volatile month-to-month). Single-family starts (blue) increased in March. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years. This was below expectations of 965 thousand starts in March. Note: Starts for February were revised up to 920 thousand from 907 thousand.

Housing Starts, Permits Miss As Rental Euphoria Fizzles -- While both the Housing Starts and Permits data reported moments ago disappointed - and sorry, you can't blame it on weather this time - with both sets of data missing expectations (Starts 946K, Exp. 970K up from a revised 920K; Permits 990K, Exp. 1010K down from a revised 1014K), the real story was in the composition of single family vs multi-family, or rental units, which showed that the previously reported rental euphoria has well and truly fizzled after a dead cat bounce in last 2013 could not be sustained. And perhaps more importantly, the complete lack of any real bounce in single-family housing, which remains at levels seen in late 2012 for starts, and is now rolling over for permits, confirms that the so-called hosing recovery not only slipped right through the vast majority of normal people, but even Wall Street is finally pulling out as builders themselves realize.

March Home Starts Cloud 2014 Forecasts - Lackluster home-construction in March has left economists divided on how to handicap the industry’s output for the rest of this year, with some predicting the pace will pick up and others saying expectations need to be reined in. Data released Wednesday by the U.S. Census Bureau provided, as usual, several different viewpoints on the industry’s state. One of the headline numbers was a positive sign: Construction starts on single-family homes in March stood at a seasonally adjusted annual rate of 635,000, marking increases of 6% from February and 2% from the March 2013 figure.Looking at a broader picture, the first quarter of this year saw builders start construction of 133,900 single-family homes. That’s 1.6% fewer than last year’s first quarter — essentially a wash. Harsh weather in many U.S. regions undoubtedly stymied activity last quarter. That now is abating, but some economists fear that demand for new homes is being hampered by rising prices and higher interest rates. That has led to differing views on the market’s trajectory. “People will question whether or not the downturn in the first quarter relative to expectations means all forecasts will get adjusted down across the board,” said Doug Duncan, chief economist for Fannie Mae. “And that’s likely to happen.” Fannie Mae currently predicts construction starts this year for 1.1 million homes, including single-family homes and multifamily dwellings.Many builders start construction on homes only after they’re contracted for sale. Thus, issues hampering demand – such as double-digit percentage increases in prices by national builders in the past year – will flow through to home starts, too.

A comment on Housing Starts - There were 203 thousand total housing starts in Q1 this year (not seasonally adjusted, NSA), down 2% from the 208 thousand during Q1 of 2013. The weak start to 2014 was due to several factors: severe weather, higher mortgage rates, higher prices and probably supply constraints in some areas. It is also important to note that Q1 was a difficult year-over-year comparison for housing starts. There was a huge surge for housing starts in Q1 2013 (up 34% over Q1 2012). Then starts softened a little over the next 7 months until November.This year, I expect starts to be stronger over the next couple of quarters - and more starts combined with an easier comparison means starts will be up solidly year-over-year. In 2013, the year-over-year comparisons ranged from a high of 42% to a low of just 2% - so there is quite a bit of variability. Overall starts finished up a solid 18.5% last year compared to 2012, and I still expect solid growth this year. Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months). This means there will be an increase in multi-family completions in 2014, but probably still below the 1997 through 2007 level of multi-family completions. Multi-family starts will probably move more sideways in 2014. The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer.

Merrill Lynch Reduces Housing Forecast for 2014 - From Michelle Meyer at Merrill Lynch: We have all been waiting for the weather to unleash stronger economic activity, particularly for the housing market. However, the housing data so far have been less than encouraging. We think it will be challenging to realize average housing starts of 1.1 million this year and are therefore trimming our forecast to 1.03 million. Our trajectory through year end is still up, with starts rising 11% from last year, but the rebound is more muted. Slower growth in starts combined with the weaker pace of home sales suggests residential investment will add 0.2pp to GDP growth this year versus our prior forecast of 0.3pp. It is important to put the recovery in housing construction into perspective. The turn started in early 2011 and gained momentum at the end of 2012. However, last year growth was weak until the bounce at the very end of the year. The question is whether that bounce was a start of a stronger rebound which just got delayed due to the weather or simply noise in the data. We think the truth is somewhere in between and are therefore penciling in an acceleration in starts, but not at the pace we experienced in Q4 of last year. Merrill has reduced their forecast for housing starts from 1.100 million this year to 1.033 million (still an 11% increase from 2013). They have kept their forecast for new home sales at 515 thousand (close to a 20% gain).

The Housing “Recovery” - New housing starts for March are out today. Rather than focus on the short-term movements, it’s worth looking at the long run. Here is the graph from calculatedriskblog.com: It’s really quite an amazing graph. We are now five full years from the end of the recession (if you buy NBER dating). And housing starts are still below any level we’ve seen since the early 1990s! So who out there thinks we are ever going to get back to the 1.5 million annualized rate? When? It may be time to start taking seriously the idea that the boost to the economy from new residential construction in the long-run may be much lower than it was in the 10 years prior to the Great Recession. The anomaly is not the weakness now, but the strength in the late 1990s and early 2000s.

NAHB: Builder Confidence increased slightly in April to 47 - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 47 in April, up from 46 in March. Any number below 50 indicates that more builders view sales conditions as poor than good. From the NAHB: Builder Confidence Holds Steady in April Builder confidence in the market for newly built, single-family homes rose one point to 47 in April from a downwardly revised March reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. .. the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The HMI index gauging current sales conditions in April held steady at 51 while the component gauging traffic of prospective buyers was also unchanged at 32. The component measuring expectations for future sales rose four points to 57. The HMI three-month moving average was down in all four regions. The West fell nine points to 51 and the Midwest posted a four-point decline to 49 while the Northeast and South each dropped two points to 33 and 47, respectively.This graph show the NAHB index since Jan 1985. This was the third consecutive reading below 50.

In Many Cities, Rent Is Rising Out of Reach of Middle Class — For rent and utilities to be considered affordable, they are supposed to take up no more than 30 percent of a household’s income. But that goal is increasingly unattainable for middle-income families as a tightening market pushes up rents ever faster, outrunning modest rises in pay. The strain is not limited to the usual high-cost cities like New York and San Francisco. An analysis for The New York Times by Zillow, the real estate website, found 90 cities where the median rent — not including utilities — was more than 30 percent of the median gross income. In Chicago, rent as a percentage of income has risen to 31 percent, from a historical average of 21 percent. In New Orleans, it has more than doubled, to 35 percent from 14 percent. Zillow calculated the historical average using data from 1985 to 2000. Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000. Apartment vacancy rates have dropped so low that forecasters at Capital Economics, a research firm, said rents could rise, on average, as much as 4 percent this year, compared with 2.8 percent last year. But rents are rising faster than that in many cities even as overall inflation is running at little more than 1 percent annually.

Wealthiest Households Accounted for 80% of Rise in Incomes In Recession’s Aftermath -- The rich got richer, the poor got poorer. A recent article by Labor Department senior economist Aaron Cobet highlights the sharp disparity between the wealthiest and poorest Americans in the aftermath of the 2007-2009 recession.“While average income has returned to pre-recession levels, income gains have been distributed unevenly,” Mr. Cobet said. The economist mined Labor Department data to show that the top 20% of earners accounted for more than 80% of the rise in household income from 2008-2012. Income fell for the bottom 20%. That had a direct impact on spending. The top households increased spending by about $2,300 from 2008-2012, notably on health care, transportation and education. The 20% of households with the lowest incomes cut spending by about $150. “The decline in spending was due to lower expenditures on apparel—specifically women’s apparel,” Mr. Cobet said. Entertainment, housing, personal care, insurance, alcohol and reading also took a hit.

Who Spends Extra Cash? - Imagine we dropped cash on every household in the country. Who would spend it? Who would save it? The answer to this question matters a great deal given the rise in inequality before the Great Recession. It also matters because the economy is likely to be demand-constrained during severe downturns, especially if the economy hits the zero-lower bound on nominal interest rates. If all households reacted to a cash windfall the same, then the distribution of income or wealth wouldn’t matter much for cyclical policy. We argued in a previous post that lower income/wealth households have a much higher propensity to spend out of cash windfalls. Another study supporting this claim is the Jappelli and Pistaferri (2013) study forthcoming in the American Economic Journal: Macroeconomics. They used answers to a 2010 survey in Italy that asked consumers how much of an unexpected cash windfall they would spend. The first notable result is that the average marginal propensity to consume out of a cash windfall shock was 48%. So 48% of the cash windfall would be spent on average. Even more interesting, the authors found that the MPC was much larger for households that had lower “cash on hand.” Cash on hand is measured as household disposable income plus financial assets minus debt. So more casually speaking, households with high “cash on hand” are rich and those with low “cash on hand” are poor. Here is the key chart:

Retail Sales increased 1.1% in March - On a monthly basis, retail sales increased 1.1% from February to March (seasonally adjusted), and sales were up 3.8% from March 2013. Sales in February were revised up from a 0.3% increase to a 0.7% increase. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $433.9 billion, an increase of 1.1 percent from the previous month, and 3.8 percent above March 2013. ... The January 2014 to February 2014 percent change was revised from +0.3 percent to +0.7 percent This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos increased 0.7%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 4.6% on a YoY basis (3.8% for all retail sales). The increase in March was above consensus expectations and this was a strong report.

March Advance Retail Sales Beat Expectations - The Advance Retail Sales Report released this morning shows that sales in March rose 1.1% month-over-month, up from 0.7% in February, which was upwardly revised from 0.3%. Core Retail Sales (ex Autos) was up 0.7% in March following an unrevised 0.3% in February. Today's headline and core numbers came above the Investing.com forecasts, which were 0.8% for Headline and 0.5% for Core. The first chart below is a log-scale snapshot of retail sales since the early 1990s. I've included an inset to show the trend in this indicator over the past several months. Here is the Core version, which excludes autos. Here is a year-over-year snapshot of overall series. Here is the year-over-year performance of at Core Retail Sales. Here is an overlay of Headline and Core Sales since 2000.

Retail Sales Surge By Most In 18 Months Led By Spike In Auto Sales - Not entirely surprising given the data from the automakers in recent weeks, but the 3.4% jump in auto dealer sales provided enough juice to push overall retail sales in the US up 1.1% MoM (beating expectations of 0.8% and with last month's data revised higher). This is the biggest month-over-month jump in retail sales since Sept 2012. The question, of course, is whether this auto spike is sustainable to support the overall sales environment or will the ever lowering credit standards of the subprime auto loan market lead to the inevitable collapse in a few months? So now we must hope for more bad weather so that we can have more pent-up demand for over-allocation to dealer lots? One place there was no pent up demand overflow was in electronics sales, which in addition to gas stations (expected following the drop in gas prices), and miscellaneous store retailers, posted the largest M/M drop in March, declining by 1.6%.

Surging retail sales signal an economy on the upswing - Americans rushed out to shop as frigid weather lifted in March, propelling retail sales at the fastest pace in a year and a half. The gauge from the Commerce Department surged 1.1% last month from February in its biggest leap since September 2012. Sales boomed 3.8% from March 2013..."We are inclined to view March strength as part of a normalization from a very weak winter, particularly December and January," Credit Suisse analysts wrote in a note to clients Monday. ... "It's a bit early to put too much weight on the retail sales number," [Standard & Poor's analyst Diya Iyer] said. "We're hearing from a lot of companies that same-store sales aren't great." ... Economists had also braced for retail sales to take more of a hit from a calendar shift that pushed Easter into April this year after helping to pad sales in March 2013.

Vital Signs: The Temperatures Warm, and So Does Retailing - The unexpectedly large increase in March retail sales lends credence to the idea that weather was the major drag on first-quarter U.S. economic growth and demand is picking up in the warmer second quarter. The Commerce Department reported Monday that total sales jumped 1.1% last month—the biggest gain in 18 months—and February sales were better than first thought. The report showed a broad revival in shopping, with sales at electronic stores and gasoline station that only blemishes (although the drop in gas sales could be price-related.) What’s important to the outlook is that the March level provides retail sales with a strong jumping off spot for second-quarter spending, since nominal March sales stand about 1% above the first-quarter average. Economists surveyed by The Wall Street Journal think the U.S. economy is growing at a 3% annual rate this quarter, double the pace estimated for the wintry first quarter.

Rising car sales in the US do not necessarily mean the economy is thriving --One statistic some commentators have been trotting out of late as a way of illustrating how well the US economy is doing is the ongoing uptick in car sales. After all, buying a new car is one of the bigger purchases people tend to make so one might reasonably assume an increase in sales volumes must indicate a similar improvement in consumer sentiment, right? Well, let’s see how that argument stands up if we dig deeper into available data. The first number looks promising, if a little surprising, and that is, according to Bloomberg, three-month rolling US auto sales are now only about 3% off their pre-crisis levels. On the other hand, US labour force participation is down to 63% while duration of unemployment remains fairly high. So, if the country’s labour force participation is at its lowest level since 1978, how can car sales be very nearly back to their boom-year levels? The answer would seem to lie in the ease with which almost anyone in the US can obtain a loan to buy a car – with a great example of this detailed in the Bloomberg Business Week article Subprime loans are boosting car sales. It tells the tale of one lady who visited a Chrysler dealership to buy a car for her daily commute. Despite a credit score of less than 500 – to put that in context, ‘prime’ is above 750, ‘sub-prime’ is below 620 and sub-500 puts you among the worst 8% of poor credit scores in the US – she drove away with a brand-new Dodge Dart.

About That "Strong" March Retail Sales "Bounce": Good Thing Summer's Coming! - What would we do without the Wall Street Journal? Do people actually pay for this lame-brained noise? - Retail Sales Surge as Consumers Rev Up Growth - Indicator Posts Best Monthly Growth Since September 2012. In fact, we are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The former is perhaps good for a pre-open futures ramp by the algos upon the 8:30 AM headline release, but nearly useless as to the real direction of America’s struggling economy. The WSJ headline writer quoted above might have at least noted the context in which the 1.1% seasonally mal-adjusted bounce for March was reported yesterday. It seems that even giving allowance to what the Fed believes to be the ”insufficient” level of consumer inflation in recent months that the February starting point for yesterday’s report was down nearly 1% from its level last September. So when the winter storms are all said and done and the inflation adjusted retail number for March is published, it will be back to about $183 billion on the graph below—a level obtained around Columbus Day last fall. It’s a good thing summer’s coming!

The Truth About Retail Sales -- I’m way behind the tax ball today, but I wanted to get this even busier and more important chart out to you. It tells a story about the success of QE in making stock market speculators rich, but as for everyone else, not so much. While nominal retail sales have increased, there has been virtually no growth in US real retail spending per person since 2012 after a tepid 2009-2012 recovery. Lately even nominal sales have slowed. Real Retail Sales Dead In the Water at 2003 Level – Click to enlargeIn 2010, Ben Bernanke said that QE would boost stock prices, and that people would spend more, benefiting the economy. Apparently he was wrong about that too. Meanwhile, the reality is probably even worse than this chart reveals. Retail sales per capita are boosted by growing foreign buying as each year millions of tourists, not to mention border dwelling Canadians, swarm into US retail stores to shop. If these gains were to be removed from this data, the picture would be both clearer and darker. The US economy is a disaster for most Americans. It explains why, even after 5 years of “recovery” consumer sentiment has barely reached its long term downtrend line. Most Americans are doing worse. Under the circumstances no bubble can be sustained, regardless of central bankers willing it to. Fictitious capital must eventually be replaced by real sales gains, and that is not happening.

The Consumer as a “Shadow of its Former Self” - Chicago Fed President Charles Evans noted last week that “the U.S. consumer is slowly improving but is just a shadow of its former self.” We couldn’t have said it better. Retail sales for March is out this morning, and we thought it would be a good time to examine why household spending has been so weak using data that were just updated through 2013. The chart below plots spending of U.S. households from 2006 to 2013. We split states into five groups, and we plot household spending for the 20% of states that had the worst housing crash from 2006 to 2009 and the 20% of states that had the smallest decline in house prices over the same period. Both groups contain 20% of the population, and the states in the worst housing crash group are Arizona, California, Florida, Michigan, and Nevada. The states where house prices fell the least include about 15 states scattered throughout the country. Both series are indexed to be 100 in 2006, which allows one to calculate the percentage change relative to 2006 for any year by simply taking that year’s spending position on the y axis and subtracting 100. Two things jump out. First, spending declined during the Great Recession by much more in states where house prices fell the most. This is something we have documented in our own research. But perhaps more importantly, the recovery in spending has been very weak in these areas. In 2013, spending in states where house prices fell the most finally increased above its 2006 level. It has taken 7 years for spending to recover in these states! This is related to an earlier post we did using furniture spending to see the legacy of the housing bust.

Headline Inflation Up Slightly As Shelter and Food Costs Rise -- The Bureau of Labor Statistics released the March CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.51%, which the BLS rounds to 1.5%, up from 1.13% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.66% (rounded to 1.7%), up from the previous month's 1.57%. The BLS headline calls attention to a rise in shelter and food costs. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment. Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas. The index for all items less food and energy also rose 0.2 percent in March. Besides the 0.3 percent increase in the shelter index, the indexes for medical care, for apparel, for used cars and trucks, and for airline fares also increased. The indexes for household furnishings and operations and for recreation both declined in March. The all items index increased 1.5 percent over the last 12 months; this compares to a 1.1 percent increase for the 12 months ending February. The index for all items less food and energy has increased 1.7 percent over the last 12 months, as has the food index. The energy index has risen slightly over the span, advancing 0.4 percent. More...The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Has inflation in the US bottomed out? -- Some analysts are beginning to suggest that inflation in the Unites States may have bottomed. As discussed earlier this years (see post), US inflation indicators were pointing to the lowest rate since 2009. Are the global disinflationary pressures going to push the rate of price increases in the US to new lows or have we hit the bottom? First of all, what is the market telling us? Market expectations of future inflation remain subdued, with the so-called breakeven (implied from TIPS) rates still near the 3-year low.The situation with consumers is similar - inflation expectations remain low relative to historical data. With expectations at the lows, why are some analysts calling the bottom on inflation in the US? Here are a few reasons: 1. Looks like producer prices are showing signs of life, as the latest PPI figure came in above expectations. The index has recently been changed to include a larger swath of the economy and it was those newer components which showed increases. Nevertheless this increase got some people thinking. 2. Today's CPI increase was also firmer than expected (see story), a great deal of which was due to rising costs of shelter and food (not great for the US consumer). 3. In spite of the weakness in some commodity prices driven by China's slowdown (see post), commodity indices are generally off the lows.

March CPI Higher Than Expected, Driven By 16.4% Annual Spike In Utilities, Increase In Shelter Index - Following the hotter than expected PPI data, it was the turn of CPI to come in stronger than consensus had hoped for, and sure enough, moments ago the BLS reported that March consumer inflation printed higher than the expected 0.1%, coming at 0.2% for both headline and the core (excluding food and energy) components, driven mostly higher by a surge in Utility costs which soared by 7.5% M/M, and a whopping 16.4% Y/Y. Curiously, the energy services spike of 2.6% of which utilities is a part, was offset by a drop in energy commodities, mostly fuel oil, whose cost dropped 2.9% in March and by gasoline down 1.7%, and down 4.7% Y/Y. The BLS also noted the rapid increase in the shelter price index: "Almost two-thirds of this increase was accounted for by the shelter index, which rose 0.3 percent. The indexes for rent and owners’ equivalent rent both rose 0.3 percent, while the index for lodging away from home rose 1.5 percent." Is the housing bubble - both purchase and rent - and which has already burst across much of the nation, finally being noticed by the Fed?

Soaring Food Inflation Full Frontal: Beef, Pork And Shrimp Prices Soar To Record Highs - We previously noted that both beef and pork (courtesy of the affectionately named Porcine Epidemic Diarrhea virus) prices have been reaching new all time highs on an almost daily basis. It is time to update the chart. Below we show what a world in which the Fed is constantly lamenting the lack of inflation looks like for beef, pork and shrimp prices. More from Bloomberg: Prices for shrimp have jumped to a 14-year high in recent months, spurred by a disease that’s ravaging the crustacean’s population. At Noodles & Co., a chain with locations across the country, it costs 29 percent more to add the shellfish to pastas this year, and shrimp-heavy dishes at places like the Cheesecake Factory Inc. are going up as well. Restaurant chains, already struggling with shaky U.S. consumer confidence, are taking a profit hit as prices climb. Even worse, the surge is happening during the season of Lent, when eateries rely on seafood to lure Christian diners who abstain from chicken, beef and pork on certain days. In March, shrimp prices jumped 61 percent from a year earlier, according to the U.S. Bureau of Labor Statistics. The climb is mainly due to a bacterial disease known as early mortality syndrome. While the ailment has no effect on humans, it’s wreaking havoc on young shrimp farmed in Southeast Asia, shrinking supplies.

Beef Prices Soar To Highest Level Since 1987 - The price of beef has reached its highest level in almost three decades and is expected to stay high in the near future. Declining cattle supply and increased demand from China and Japan caused the average retail cost of beef to jump to $5.28 a pound in February, the Associated Press reports. That’s almost 25 cents higher than the average cost in January and the highest price since 1987. Jim Robb, director of the Livestock Marketing Information Center, told the AP that economists expected consumers to look for substitutes for beef as ranchers in Texas and other parts of the country battled droughts while prices rose. Beef isn’t the only meat getting more expensive. A virus that has killed millions of pigs has caused the price of pork to rise. The average retail cost of chicken has also increased to $1.95 per pound, the highest price since October. “I think these higher food prices are here to stay, including beef,”

Attention Shoppers: Fruit and Vegetable Prices Are Rising - Grocery shoppers may soon need more green in their wallets to afford their next salad. The cost of fresh produce is poised to jump in the coming months as a three-year drought in California shows few signs of abating, according to an Arizona State University study set to be released Wednesday. The study found a head of lettuce could increase in price as much as 62 cents to $2.44; avocado prices could rise 35 cents to $1.60 each; and tomatoes could cost 45 cents more at $2.84 per pound. (The run-up in produce prices is in line with other projections showing that overall food cost gains are expected to accelerate this year.) The latest projections were compiled by Timothy Richards, an agribusiness professor at ASU’s W.P. Carey School of Business. He studied the drought’s effect on farmland and consumer purchasing trends to determine the eight fresh fruits and vegetables likely to see the largest price increases this spring and summer. And the price increases may already be happening. Grocery prices rose by 0.5% for the second-straight month in March, according to the Labor Department’s consumer-price index, released Tuesday. It was the largest two-month gain in the food-at-home category since 2011. Fruit and vegetable prices rose 0.9% last month, after a 1.1% gain in February. Meat and dairy prices are also increasing. Meanwhile, overall consumer prices rose just 0.2% last month, as broader inflation in the economy remains tepid.

It's Time To Ditch The Consumer Price Index (CPI) - That the official rate of inflation doesn't reflect reality is obvious to anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight.The CPI calculates inflation based on the prices of a basket of goods and services that are adjusted by hedonics, i.e. improvements that are not reflected in the price of the goods. Housing costs are largely calculated on equivalent rent, i.e. what homeowners reckon they would pay if they were renting their house. The CPI attempts to measure the relative weight of each component:Many argue that these weightings skew the CPI lower, as do hedonic adjustments. The motivation for this skew is transparent: since the government increases Social Security benefits and Federal employees' pay annually to keep up with inflation (the cost of living allowance or COLA), a low rate of inflation keeps these increases modest.Over time, an artificially low CPI/COLA lowers government expenditures (and deficits, provided tax revenues rise at rates above official inflation). Those claiming the weighting is accurate face a blizzard of legitimate questions. For example, if healthcare is 18% of the U.S. GDP, i.e. 18 cents of every dollar goes to healthcare, then how can a mere 7% wedge of the CPI devoted to healthcare be remotely accurate?

Weekly Gasoline Update: Prices Continue to Rise - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both up five cents, the tenth week of increases. Regular is up 46 cents and Premium 42 cents from their interim lows during the second week of November. According to GasBuddy.com, California and Hawaii remain the only states with regular above $4.00 per gallon, with Hawaii now at $4.28 and California at 4.17.

Hotels: Strongest Year since 2000 - From HotelNewsNow.com: US hotels report strong weekly RevPAR The U.S. hotel industry posted positive results in the three key performance measurements during the week of 6-12 April 2014, according to data from STR.In year-over-year measurements, the industry’s revenue per available room jumped 12.8% to $80.09. Occupancy for the week increased 7.1% to 68.5%. Average daily rate rose 5.3% to finish the week at $116.85.Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. These metrics are now at new highs. The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the highest level since 2000. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

LA area Port Traffic: Up year-over-year in March, Exports at New High - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for March since LA area ports handle about 40% of the nation's container port traffic.The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was up 1.3% compared to the rolling 12 months ending in February. Outbound traffic was up 0.9% compared to 12 months ending in February. Inbound traffic has generally been increasing, and outbound traffic has been moving up a little after moving sideways. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). This suggests an increase in trade with Asia in March.

Business inventories up as February sales bounce back - U.S. businesses boosted their stockpiles in February as sales rebounded by the largest amount in nine months. The U.S. Commerce Department reported Monday that stockpiles increased 0.4 percent in February following a similar 0.4 percent increase in January. Sales rose 0.8 percent in February, bouncing back after a 1.1 percent sales decline in January that was blamed on the harsh weather that month. It was the biggest one-month sales gain since last May. A separate report showed a surge in sales at the retail level in March, providing support to the view that stronger consumer spending in coming months will encourage businesses to restock their shelves and provide a boost to the economy. While the economy slowed in the January-March quarter, many economists are looking for a strong rebound in the current quarter. The report on business inventories covers all kinds of stockpiles, including manufacturing, wholesaling and retailing. Inventories held by manufacturers rose the most in February, a gain of 0.7 percent, while inventories at the wholesale level were up 0.5 percent. Stockpiles held by retailers were unchanged in February.

US business inventories rose 0.4% in February vs. 0.5% estimate: U.S. business inventories rose a bit less than expected as sales rebounded, suggesting a slow pace of restocking could weigh on economic growth in the first quarter. The Commerce Department said on Monday inventories increased 0.4 percent in February after rising by the same margin in January. Read MoreTorrid March retail sales melt winter's effects Economists polled by Reuters had forecast inventories increasing 0.5 percent in February. Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos, which go into the calculation of GDP, rose 0.2 percent. That followed a 0.6 percent rise in January. Motor vehicle inventories fell for a second straight month. Businesses accumulated too much stock in the second half of last year and are placing fewer orders with manufacturers while they work through the pile of unsold goods. That, together with severe weather, the expiration of long-term unemployment benefits and food stamps cuts, is expected to weigh on first-quarter GDP growth. Inventories were neutral to fourth-quarter GDP growth.

Real retail sales set new high: real wages decline - Based on the March reports, I can now update two of my frequent metrics: real retail sales, and real wages. March inflation was only +0.2%, which still caused a small increase in the YoY measure. This is almost all due to the price of gas, which had already hit its 2013 high in early March, whereas gas is still increasing seasonally this year. Real retail sales hit a new high in March:so the expansion is intact. Since real retail sales per capita tend to hit their peak a year or more before any recession, let's look at that measure as well: Here we haven't quite made a new high. Note that we had a similar decline in 2012 before sales per capita hit their stride again. Finally, with the -$.02 decline in average hourly earnings in March, real wages took a significant hit: Real wages are still up YoY, and there is no sign that the trend is changing. Still, the average American household could use a raise, particular since the increase in interest rates last year have brought refinancing to a screeching halt.

The Big Four Economic Indicators: Real Retail Sales and Industrial Production - With yesterday's release of CPI data for March, we can now calculate Real Retail Sales. As the adjacent chart shows, this indicator has recovered from its December-January slump and has now hit a record high. The real series was up 0.94% in March and 2.21% year-over-year. As we can see in the YoY chart in the appendix below, the downward trend since early 2011 hit a trough (so far) in January, but the increases in February and March are perhaps signaling a trend reversal. Time will tell. The latest Industrial Production data includes the Fed's extensive annual revisions published at the end of last month. The March month-over-month increase of 0.7% beat the Investing.com forecast of 0.5%, and the February MoM was revised upward from 0.6% to a whopping 1.2%. The Fed report explains: "The rise in February was higher than previously reported primarily because of stronger gains for durable goods manufacturing and for mining. For the first quarter as a whole, industrial production moved up at an annual rate of 4.4 percent, just slightly slower than in the fourth quarter of 2013." The chart and table below illustrate the performance of the Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. We now have three of the four indicator updates for the 57th month following the recession. With one data point left for March, the Big Four Average (gray line below) is showing the two strongest advances of the past twelve months.

Fed: Industrial Production increased 0.7% in March --From the Fed: Industrial production and Capacity UtilizationIndustrial production increased 0.7 percent in March after having advanced 1.2 percent in February. The rise in February was higher than previously reported primarily because of stronger gains for durable goods manufacturing and for mining. For the first quarter as a whole, industrial production moved up at an annual rate of 4.4 percent, just slightly slower than in the fourth quarter of 2013. In March, the output of manufacturing rose 0.5 percent, the output of utilities increased 1.0 percent, and the output of mines gained 1.5 percent. At 103.2 percent of its 2007 average, total industrial production in March was 3.8 percent above its level of a year earlier. Capacity utilization for total industry increased in March to 79.2 percent, a rate that is 0.9 percentage point below its long-run (1972–2013) average but 1.2 percentage points higher than a year prior. This graph shows Capacity Utilization. This series is up 12.3 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 79.2% is still 0.9 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production increased 0.7% in March to 103.2. This is 23% above the recession low, and 2.5% above the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were above expectations.

Industrial Production Growth Slows As Manufacturing Misses, Capacity Utilization Highest Since -- Last month's industrial production beat was revised up dramatically to its biggest beat since 1998 - courtesy of the annual revision of the data series as noted below - which left this month showing fading growth. Perhaps more disappointingly was the 4th miss of the last 5 months for manufacturiung production. Capacity Utlization rose to an impressive 79.2% as "slack" in the un-job-producing economy is rapidly disappearing. This was also the highest capicty utilization print (once again courtesy of the annual data revision) since June 2008.

Industrial Production A High Energy Good News - Bad News Story - I saw the great numbers on Industrial Production (IP) the other day and wondered what the heck is going on. So much of the data that I watch and write about here shows the US economy and most Americans doing poorly. . Retail sales per capita are horrible. Housing is a mess. Joblessness and underemployment are rampant. Then this comes along. Industrial Production rose 0.7% in March according to the news headlines. The Wall Street conomist crowd had expected a gain of just 0.5%. But mygawd, even that is 6% annualized, and the reported number annualizes to 8.5%. How is this possible? Those numbers are the usual seasonally adjusted media pap fiction, and fiction should never be annualized, but the the actual, not seasonally adjusted numbers (NSA) were also very strong. These numbers also need not be inflation adjusted because they are based on units of production. The Fed’s IP Index (NSA) hit a record 103.33 in March. That was up 4.1% from the year ago figure. The trend has been accelerating since the middle of last year when the year to year gain was just 1.7%. The monthly gain of 1.3% in March was double the 10 year average gain for the month. This, along with the stock market bubble, appears to be one indicator where the Fed’s QE might be having an effect, although the growth rate has moderated since the initial bungee rebound in 2009-10. If it’s having an effect, the effects are diminishing, but on the surface, there’s at least some correlation.

Bad news; industrial production is soaring -- TravisV sent me to the following graph of industrial production: That looks like good news. To see why it is bad new, we need to take a brief digression. The recent recession has been rather unusual. RGDP fell sharply between 2008 and 2009, and since bottoming out in mid-2009 has grown at about 2.4% annually, which is below the 3% trend line of the past 100 years. This has led many to conclude that the economy is not recovering at all. A counterargument is that the unemployment rate has fallen from a peak of 10% to the current 6.7%, and in my view it will fall even further over the next year or two. A counter counterargument is that the employment/population ratio fell sharply in the recession, and has not been recovering. A counter counter counterargument is that this partly represents boomer retirement, as the over 55 year old category is where all the recent population growth has been occurring. This is from a recent Joe Weisenthal post: Here's what we need to figure out, is the recovery cyclical or is it secular growth? Suppose it was secular growth, what would it look like? In my view we'd expect roughly 2% to 3% growth in the major components of GDP, as output remained cyclically depressed, but grew at the trend rate (so that the recession wasn't becoming worse.) Now let's return to industrial production. This sector (mostly manufacturing but also mining and utilities) is always much more cyclical than RGDP. Whereas RGDP fell about 4.3% peak to trough, IP plunged 16.9%. Since the trough in early 2009, IP is up 23.3% (although the low base in 2009 means we've barely passed the previous 2007 peak.) That might sound like good news---the economy is recovering! But it's actually bad news. If the economy is recovering then the trend rate of growth must be much less than the anemic 2.4% rate we've seen over the past 4.5 years. I'd guess that 1% to 1.5% is the "new normal." And not just in the US, but also in other (non-Obama ruled) developing countries, with the possible exception of high-immigration places like Australia and Singapore.

The Sluggish Recovery for U.S. Heavy Truck Sales - Just a quick graph ... heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April 2009 on a seasonally adjusted annual rate (SAAR) from a peak of 555 thousand in February 2006. Sales doubled from the recession low by April 2012 - and have mostly moved sideways since then. This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is current estimated sales rate. As construction - both residential and commercial - picks up, heavy truck sales will probably increase further.

NY Fed: Empire State Manufacturing Survey indicates "business activity was flat" in April - From the NY Fed: Empire State Manufacturing Survey The April 2014 Empire State Manufacturing Survey indicates that business activity was flat for New York manufacturers. The headline general business conditions index slipped four points to 1.3. The new orders index fell below zero to -2.8, pointing to a slight decline in orders, and the shipments index was little changed at 3.2. ... Employment indexes suggested modest improvement in labor market conditions. The index for number of employees inched up to 8.2, indicating a small increase in employment levels, and the average workweek index fell three points to 2.0, pointing to a slight increase in hours worked. Indexes for the six-month outlook continued to convey a fair amount of optimism about future business conditions. The index for expected general business conditions advanced five points to 38.2. The index for future new orders fell for a second consecutive month, though it remained at a fairly high level of 32.7.

Empire State Manufacturing Doesn’t Meet Expectations - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions was flat, posting a reading of 1.3, down from 5.6 last month. The Investing.com forecast was for a much stronger reading of 8.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report.The April 2014 Empire State Manufacturing Survey indicates that business activity was flat for New York manufacturers. The headline general business conditions index slipped four points to 1.3. The new orders index fell below zero to -2.8, pointing to a slight decline in orders, and the shipments index was little changed at 3.2. The unfilled orders index remained negative at -13.3, and the inventories index dropped ten points to -3.1. The prices paid index held steady at 22.5, indicating continued moderate input price increases, and the prices received index rose to 10.2, pointing to a pickup in selling price increases. Employment indexes showed a modest rise in employment levels and a slight increase in the average workweek. Indexes for the six-month outlook continued to convey a good deal of optimism about future conditions, and the capital expenditures index climbed seven points to 23.5, its highest level in several months. Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire Manufacturing Misses By Most In 15 Months, Drops To 2014 Lows - For the 8th month of the last 9, the Empire Manufacturing missed expectations. Tumbling to its lowest since December (despite the apparent let-up in weather freakishness), this is the biggest miss since Jan 2013. The average workweek slowed significantly, but the overall index was modestly saved by a push higher in 'hope' as the six-months-forward index jumped back to Feb highs. Perhaps most concerning, given the supposed pent-up demand that we have been told to expect when the weather picked up, was the tumble in new orders to their lowest since November.

Philly Fed Manufacturing Survey indicated Faster Expansion in April - From the Philly Fed: April Manufacturing Survey - Manufacturing activity in the region increased in April, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment all remained positive and increased from their readings in March. Price pressures remain modest. The surveyʹs indicators of future activity reflected optimism about continued expansion over the next six months, although the indicators have fallen from higher readings in recent months. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 9.0 in March to 16.6 this month, its highest reading since last September. The employment index remained positive for the 10th consecutive month and increased 5 points, suggesting overall improvement. This was above the consensus forecast of a reading of 9.1 for April.

Philly Fed Business Outlook Again Beats Forecast --- The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 16.6, an increase from last month's 9.0. The 3-month moving average came in at 6.4, up from 4.0 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today's six-month outlook at 26.6 is the lowest in 12 months. Here is the introduction from the Business Outlook Survey released today: Manufacturing activity in the region increased in April, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment all remained positive and increased from their readings in March. Price pressures remain modest. The survey’s indicators of future activity reflected optimism about continued expansion over the next six months, although the indicators have fallen from higher readings in recent months. (Full PDF Report) Today's 16.6 came in above the 10.0 forecast at Investing.com. The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now off its post-contraction peak in September of last year.

Philly Fed Surges To 7-Month Highs As "Hope" Crashes To 1-Year Low - The Philly Fed Business Outlook survey surged to 16.6, beating expectations by the most since September and rising to 7-month highs. Most subindices rose with shipments surging and new orders rising but prices paid flat. The big worry though is that this six-month forward expectations collapsed to their lowest since April 2013. So the pent-up-weather-demand is being seen as entirely unsustainable by the survey respondents... From the report: The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 9.0 in March to 16.6 this month, its highest reading since last September (see Chart). The index has now increased for two consecutive months, following the weather?influenced negative reading in February. The new orders and current shipments indexes also moved higher this month, increasing 9 points and 17 points, respectively. Indicators suggest slightly improved labor market conditions this month. The employment index remained positive for the 10th consecutive month and increased 5 points, suggesting overall improvement. The percentage of firms reporting increases in employment (20 percent) edged out the percentage reporting decreases (13 percent). The workweek index was also positive for the second consecutive month, edging 2 points higher.

Vital Signs: Another Good Omen for Business Spending -- The U.S. business sector has been a major laggard when it comes to demand. After a strong 2010, growth in business spending on new plant and equipment has decelerated in each year of this recovery. Economists think that trend will change in 2014. The latest surveys of regional manufacturers done by the Federal Reserve Banks of New York and Philadelphia support that view. Both banks ask area manufacturers about future capital spending. The results show more companies are willing to increase spending in the next six month than are thinking about pulling back. In its March survey, the Philly Fed included special questions about capital spending. Almost half of respondents expected their firm’s total capital spending will be higher this year than in 2013. Non-computer equipment and software are the top two items on businesses’ shopping lists.

Vital Signs: Big Manufacturers Are Upbeat About the U.S., but More Worried about the World - Large manufacturers are more confident about the U.S. economy’s future but less so about the global outlook, according to a survey released Thursday. The first-quarter PwC Manufacturing Barometer, a survey of 61 U.S.-based multinational manufacturing executives done by professional services firm PwC, found 71% are optimistic about the U.S. economy’s prospects for the next 12 months, but only 41% are upbeat about the global economy. The U.S. response was 3 percentage points above its fourth-quarter reading, while the global share was down 6 points. Executives also expect their own companies to do better—and not just in the U.S. A large 82% expected positive revenue growth for the own companies, down from 85% saying that in the fourth quarter of 2013, but up from 78% thinking that a year ago. And the sales gain is not happening just in the U.S. “Despite [the] drop-off in optimism about the world economy’s prospects, quarterly sales among international marketers remained in an upward movement,” the report said. Thirty percent reported an increase in international sales in the first quarter while only 10% reported a decrease. The greater optimism about revenues, however, is not leading to a surge in hiring or capital spending. Only 39% of the executives say their companies are planning major new investment or 56% plan to hire. Both response rates are down from the end of 2013. Overall, the companies expect, on net, to increase their total workforce by 0.4%, down from a 1% increase planned a year ago. That indicates “a continuation of moderate hiring among these industrial manufacturing firms, despite their steady growth,” the report said.

The Sad, Slow Death of America's Retail Workforce - Retail sales just notched their best month since 2012 and the industry has added almost one million jobs since 2010. But the rosy headline stats obscure a more complex and potentially troubling story in retail—particularly for its employees. The business of selling stuff is becoming much more efficient. Sales-per-employee have gone from $12,00 to $25,000 in the last two decades. That means that even as consumers spend more, we need fewer workers to stock shelves and process orders. One reason retail has become so efficient is that more of it is happening across Internet cables rather than across registers. E-commerce is gobbling up one percentage point of total sales every two-and-a-half years. Call it the Amazon Effect. And then there's the Walmart Effect. As I've reported, one Walmart worker replaces about 1.4 local retail workers, so that a county sees about 150 fewer jobs in the years after a Walmart opens its doors. Combined with the Amazon effect, this has dramatically reduced our need for retail workers to sell things, and so retail's share of the labor force, which peaked in the late 1980s, has been declining ever since.

Weekly Initial Unemployment Claims at 304,000; 4-Week average lowest since 2007 -- The DOL reports: In the week ending April 12, the advance figure for seasonally adjusted initial claims was 304,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 300,000 to 302,000. The 4-week moving average was 312,000, a decrease of 4,750 from the previous week's revised average. This is the lowest level for this average since October 6, 2007 when it was 302,000. The previous week was revised up from 300,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 312,000. This was lower than the consensus forecast of 320,000. The 4-week average is at normal levels for an expansion.

New Jobless Claims Fall to Pre-Recession Levels -- The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 304,000 new claims number was an increase 2,000 from the previous week's 302,000 (revised from 300,000). The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, fell by 4,750, now at 312,000, the best since October 2007 -- two months before the onset of the last recession.Here is the opening of the official statement from the Department of Labor: In the week ending April 12, the advance figure for seasonally adjusted initial claims was 304,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 300,000 to 302,000. The 4-week moving average was 312,000, a decrease of 4,750 from the previous week's revised average. This is the lowest level for this average since October 6, 2007 when it was 302,000. The previous week's average was revised up by 500 from 316,250 to 316,750. [See full report] Today's seasonally adjusted number at 304K came in below the Investing.com forecast of 315K. Here is a close look at the data over the past few years (with a callout for the past year)

The deceptively strong 1st quarter: With the unemployment rate stuck at 6.7%, where it was in December, one might be tempted to think that the labor market is going through a period of weakness. It turns out that 2014 1Q has seen a large upswing in labor force participation. Here is a chart showing the employment-population ratio (EPR) and the labor force participation rate (LFP)The purple line is the LFP trendline. In other words, that is what labor force participation would be if the LFP of each age group followed long term trends. This is what LFP would be without cyclical fluctuations. So, we can see that LFP has dipped below trend, which is normal for a recession. The Unemployment Rate is the difference between the EPR and the LFP (with the LFP as the denominator). What we can see in the graph is that the past 6 months have seen an impressive uptick in both employment and LFP (the downtick in October was related to the government shutdown). The household survey has reported a gain of over 1.1 million jobs in the 1st quarter. That little green line at the end is the LFP that would correspond to a 6.0% unemployment rate, given the recorded EPR. In other words, if LFP hadn't jumped so much this quarter, unemployment would nearly be down to 6.0% in March. Now, there is a lot of noise in the household data. But, even if we assume this is noise, and adjust LFP back down to the short term trend, unemployment would have fallen to below 6 1/2% by March, given the statistical relationship between short term noise in the EPR and LFP series. April 2010 was the last time this sort of jump happened in LFP, and the unemployment rate dropped by 0.5% over the next two months

Finding a Full-Time Job May Get Easier, But Not for Everyone -- Some 7.4 million Americans last month were working part-time jobs because they couldn’t find full-time work. Many of them will have better luck as the economy improves, but others could be locked out by the changing nature of the U.S. economy, four Federal Reserve economists argue in a new analysis. So-called “involuntary part-time employment” has fallen in goods-producing industries as factories ramped up production in recent years. But in the services sector, “the progress has been somewhat slower and the fraction working part-time due to slack conditions remains substantially elevated,” “The higher prevalence of the latter type of involuntary part-time work in service-providing industries could be related to some intrinsic (technological) characteristics of these industries. For example, the leisure and hospitality and the retail trade industries both have shorter workweeks and a higher share of part-time workers, likely reflecting some organizational aspects of their production processes,” they wrote. “Ongoing transformation of U.S. employment away from manufacturing and towards services-providing industries could lead to a secularly-increasing share of (involuntary) part-time work going forward, although quantitatively the effect is expected to be modest.” How modest? “Since 2000, the changing industry composition contributed a few tenths of a percentage point to the share of involuntary part-time work in the labor force,” they wrote in a footnote. In any case, the economists wrote, the number of Americans who want a full-time job but can’t find one “remains unusually high” and “has led to a concern that there is an underbelly of labor market slack not well accounted for by the overall unemployment rate.”

Obama's job-training unicorn: it's time for some new ideas already - "I promise you there's not a job out there that will pay you a lot without some kind of training," President Obama said to a group of students and workers at a Pittsburgh community college Wednesday afternoon. Yet many American companies are not training new workers or re-training existing ones, and Congress isn't even close to passing any major jobs-related legislation – and hasn't since 2011. The biggest problem facing the country – 10.5m people out of work – remains, but Congress is still fighting over paying unemployment benefits to those who have been out of work for over six months. Meanwhile many corporate executives, at companies including ChevronPhillips, say they need thousands more skilled workers – but they're certainly not actually hiring and are just hoarding more cash than ever. It would seem beneficial, then, for both corporate executives and lawmakers to reduce the unemployment crisis by training US workers. Enlightened self-interest, however, seems to be a lost concept in US business these days; its unwelcome replacement seems to be thick-headed short-sightedness. Our companies just can't figure out what's good for them, and they have good company in the US Congress. Obama did an end run around the issues at hand as well. "There are some other folks in Washington that haven't acted yet," on the jobs crisis, he said in Pittsburgh. "They haven't gotten the job done so far.”

The Rise and Fall of Labor Force Participation in the U.S. - St. Louis Fed - Labor market performance is at the heart of the debate over how to characterize the state of the U.S. economy, wrote Federal Reserve Bank of St. Louis President James Bullard in The Regional Economist. The unemployment rate has generally declined faster than many forecasters anticipated since it hit 10 percent in the fall of 2009, he noted. Along with this development, labor force participation (LFP) has declined substantially, as shown below. There are two main interpretations of these data, Bullard said. According to the “bad omen” view, the recent declines in LFP are suggestive of a very weak labor market; this view discounts the signal coming from recent faster-than-expected declines in unemployment. According to the “demographics” view, recent declines in LFP are more benign; this view takes the signal coming from recent faster-than-expected declines in unemployment at face value. “Since the Federal Open Market Committee has explicitly tied monetary policy choices to labor market performance, it is of considerable importance which view is more nearly correct,” Bullard pointed out. It is helpful to review the LFP data over several decades, which are shown in this chart: The rise in LFP during the 1970s, 1980s and 1990s is often attributed in part to the maturing of the baby boomers, as well as to the increase in the number of women in the workforce. The decline since 2000 has often been attributed to the aging of the labor force.

How Working Women Help the Economy - If someone asked you to name the most important economic trends of the last 30 years, you would probably respond with rising inequality, increasing globalization and fast-paced technological change. But there’s another trend that has led to sharply higher economic output, and one that goes largely overlooked. That is the flood of women into the full-time workforce: Since 1979, the proportion of working-age women with a full-time job has surged to 40.7 percent from 28.6 percent. For mothers, the effect is even more striking: The proportion has climbed to 44.1 percent from 27.3 percent. Those statistics come from a new report from the Center for American Progress, a left-of-center Washington-based research group. It finds that if women’s employment patterns had remained unchanged for the last three decades, the economy would be about 11 percent smaller, translating into $1.7 trillion in lost economic output in 2012, roughly equivalent to government spending on Social Security, Medicare and Medicaid. The report also looks at the hours women worked, regardless of whether they were in full-time or part-time jobs. The median number of hours worked by women has climbed by 739 hours a year, to 1,664 hours; for mothers, hours worked has increased by 960 hours to 1,560. The ultimate effects are richer families and a larger economy. Compare the United States to Japan, for instance. Tokyo has failed to jolt the Japanese economy out a generation-long slump, and the failure of the country to integrate women into the workforce is a major cause, according to researchers at institutions including the International Monetary Fund.

Why is Involuntary Part-Time Work Elevated? - FRB FEDS Notes - Despite substantial improvement in the unemployment rate and several other labor market indicators, the number of Americans involuntarily working part time (also called "part-time for economic reasons") remains unusually high nearly five years into the recovery.1The high level of involuntary part-time work has led to a concern that there is an underbelly of labor market slack not well accounted for by the overall unemployment rate. In this note, we focus on two questions:

What can Current Population Survey (CPS) data on the stocks and flows of involuntary part-time employment say about the underlying reasons for its persistently high rate?

Based on this analysis, what can we expect for the evolution of involuntary part-time work going forward?

Our analysis suggests there are reasons to believe that continued cyclical improvement in the labor market will put downward pressure on involuntary part-time work, but there is also a possibility that secular trends may augur structurally higher part-time employment.

Recession’s Lingering Scars Could Include Lower Labor-Force Participation --The recession left deep scars on the U.S. economy, and two features of the lackluster recover – sluggish productivity growth and lower labor-force participation – may persist for years to come. That’s according to Robert Hall, a Stanford University economics professor, former president of the American Economic Association, co-father of the “flat tax” and chairman of the committee that decides when recessions begin and end. In a new paper , he argued growing dependence on welfare programs like food stamps and Social Security disability payments may cause fewer people to seek work, and as a result keep the labor-force participation rate lower in the coming years. “Bulges in their enrollments appear to be highly persistent,” Mr. Hall wrote. “Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries. The bulge in program dependence is a state variable arguably resulting from the crisis that may impede output and employment growth for some years into the future.” The U.S. labor-force participation rate was 63.2% in March, according to the Labor Department. That’s up from 62.8% in December, but low by historical standards. It was 66.4% at the beginning of 2007. Mr. Hall calculated the participation rate was 2.4 percentage points lower in 2013 than it should have been based on its 1990-2007 trend. That was due partly to the difficulty of finding a job but also due to greater use of Medicaid, disability and food-stamp benefits. The eligibility rules for food stamps “discourage work among those electing to enroll and, on the other hand, discourage enrollment in the program for those with any significant earning power,” he wrote.

Losing Benefits Isn’t Prodding Unemployed Back to Work - The cutoff of federal unemployment benefits doesn’t seem to be helping the long-term unemployed get back to work. More than a million Americans saw their unemployment benefits expire at the start of the year, after Congress failed to renew the Emergency Unemployment Compensation program. The program, which Congress created in 2008, had provided federally funded payments to unemployed workers when their state-funded benefits ran out, usually after 26 weeks. The Senate recently voted to restore the benefits, but the House shows little sign of following suit.So far, however, the evidence doesn’t seem to support that theory. Rather than finding jobs, the long-term unemployed continue to be out of luck. We now have three months’ worth of job market data since the benefits program expired. The chart below shows job-finding rates for the long-term and short-term unemployed. Notice three things: First, the short-term unemployed have a much better chance of finding a job than the long-term unemployed and always have. Second, the short-term unemployed are seeing a steady improvement in their prospects, but the long-term jobless are not. And third, there’s been no major shift since the benefits program expired at the end of last year.

Supply, Demand, and Unemployment Benefits - Paul Krugman - Ben Casselman points out that we’ve had a sort of natural experiment in the alleged effects of unemployment benefits in reducing employment. Extended benefits were cancelled at the beginning of this year; have the long-term unemployed shown any tendency to find jobs faster? And the answer is no. Let me parse this a bit more, and ask, how was it, exactly, that reduced benefits were supposed to encourage employment in the first place? Making the unemployed miserable arguably increases labor supply, as workers become less choosy and more willing to take whatever job they can find. But the US labor market in 2014 isn’t constrained by supply, it’s constrained by demand: given what firms can sell, they have no need for as many hours of work as workers are willing to give. So make the long-term unemployed more desperate; so what? They can’t do anything to increase the amount of work demanded, and in fact their reduced purchasing power reduces labor demand. You might imagine that the long-term unemployed, through their desperation, might take jobs away from existing workers — but it’s not easy to see how that might work, and there’s no evidence that this is happening. So the point is that as long as you understood that we have a demand-constrained economy, you knew that cutting off the unemployed would produce all pain, no gain.

Unemployment Benefits, Job Prospects and the Long-Term Unemployed - What happens when the long-term unemployed are suddenly cut off from being able to cash in on the federal government's extended unemployment benefits program? That's the case for millions of Americans who have been unemployed for 27 weeks or longer, for whom the federal government's extended unemployment benefits program expired after 28 December 2013. Now without that financial assistance for several months, and therefore being highly motivated to find work to replace their lost income from unemployment benefits, we wondered how successful those individuals have been. Early reports indicate that very little has changed for the employment prospects of the long-term unemployed, at least through the first month of their no longer having unemployment benefits, but what has changed would seem to have changed for the better. Here's an example from Illinois, where 74,000 people lost extended unemployment benefits after the program expired on 28 December 2013: One month later, 64,000 or 86 percent, still were without work, according to an Illinois Department of Employment Security analysis released today. With 14% of the long-term unemployed in Illinois having found jobs in just one month according to the state's official statistics, Illinois saw a rate of improvement that's notably better than the 10% to 11% rate of new hiring success that studies indicate is typical for those who have been unemployed for 27 weeks or longer in recent years. That's also remarkable in that January 2014 saw extremely cold winter weather disrupt much of Illinois' economy, costing it billions of dollars. However, that's only after one month after their extended unemployment benefits expired. The average dedicated job search ranges between three and six months in duration, so we wouldn't necessarily expect much of a change in new-hire statistics for the long-term unemployed after that short a period of time. We'll have to watch how that continues to play out.

The Unluckiness of the Long-Term Unemployed - Mike Konczal - Ben Casselman has a fascinating dive into the long-term unemployment data at the new 538 site. He finds that the long-term unemployed are driven in large part by luck. An unemployed person is more likely to be unemployed for a long period of time when they happen to lose their job at a time of high unemployment. Here's their core chart: He also finds that this effect is stronger for those who are unlikely to receive unemployment insurance. One comment I had. There's an argument that the long-term unemployed are the weakest employees, those who were fired during the first wave of layoffs that started in 2008. These workers were going to have a hard time finding jobs not based on the labor market but because, to be blunt, they weren't good workers. (One manifestation: Tyler Cowen did a lot with this idea of zero marginal product workers, ignoring that the marginal product of labor is impacted by demand, back in 2011.) Since long-term unemployed workers look a lot like the general unemployment pool, this is thought to be driven by softer, not-quantifiable, worker characteristics. If that was the case, then the job losers on the upswing of unemployment, during the first wave of layoffs in 2008 when unemployment was in the 5-8% range, should be more likely to have become a member of the long-term unemployed. But we see a pretty consistent pattern in that chart, which tentatively give evidence that it's not just the initial skill level of the workers driving the level of long-term unemployment.

Not Just the Long-Term Unemployed: Those Unemployed Zero Weeks Are Struggling to Find Jobs: Leave aside for a moment the difficulty that the long-term unemployed, those who were unlucky and have been looking for a job for more than 52 weeks, have in finding a job. Even those who have been unemployed zero weeks are having trouble finding jobs in this economy. And this is important evidence against the idea that the labor market is doing better than people realize if you just ignore the long-term unemployed. Here’s a data point that I’m particularly interested in: how often are employed people going straight to another job, rather than leaving their job and enduring a period of unemployment before finding new work?Though most people think of the employed spending some time in unemployment before starting a new job (an idea that was central to the recent theory that quit rates predicted a healthy job market), a substantial number of people move directly from one job to another without ever counting as unemployed. Since our statistics (and most of the economic models) are set up to observe people who are looking for work but are unable or unwilling to accept a job, these steadily employed workers can go missing in the discussion. That’s a shame, because historically they comprise almost half of all those who accept a new job.

Workers’ Earnings Climb at Healthy Pace in First Quarter --Are American workers finally starting to see some decent wage increases? A report Thursday offers hope, showing incomes picked up at a healthy pace in the first three months of the year. The weekly earnings of the typical full-time worker rose 3% in the first quarter compared to a year earlier, the fastest pace since 2008, the Labor Department said. That translated into median earnings—the point at which half of all workers made more and half made less—of $796. When you adjust for inflation, median earnings are now at their highest level since the second quarter of 2012. Even better is that the earnings growth far outpaced the 1.4% year-over-year rise in consumer prices, as measured by the Labor Department. Earnings that rise faster than costs mean workers will have more money to spend on discretionary purchases. Consumer spending is the biggest source of economic demand in the U.S.It’s way too early to tell whether the trend will continue, especially since the nearly five-year-old U.S. economic recovery has been so choppy. But Thursday’s report follows other signs pointing to a strengthening labor market. Initial jobless claims—a proxy for layoffs—totaled 304,000 last week, the Labor Department said Thursday, holding near pre-recession levels. Overall hiring picked up in February and March after a winter slump. And businesses appear to be taking advantage of looser lending standards to invest in workers and equipment.

Rents, Rents, Everywhere Rents! - Once you start seeing rents at the high end of the US compensation scale, it’s hard to stop (“rents” in this context means being paid well above your actual contribution to your firm’s value-added). There’s all the “front-running” stuff by high-frequency traders that’s finally getting a lot of press, which is a close cousin of the early-info traders I’ve written about a few times. Then there’s the collusion among Silicon Valley CEOs to suppress competitive wage bargaining in the labor market (h/t: KA). And then there’s the extreme cyclicality of top-tier wage trends. Start with EPIs revealing wage series, developed from Social Security administrative wage data, a highly reliable source. The figure below, from their State of Working America, shows the extremes of growing earnings inequality since the late 1970s. It plots real earnings by income group, indexed to 1979, to enable comparison of very different scales—by 2012, the average annual earnings of the top 1% was about $650,000, while that of the bottom 90% was $32,000 (and that of the top 0.1%, not shown, was $2.5 million). One can see the full employment impact of the latter 1990s in the figure’s bottom line for the 0-90%, as those are about the only years in the series where the bottom 90% gets a clear boost. But look at those very large cyclical bips and bops amidst the top 1%–and they’re even more pronounced for the top 0.1%. What the heck’s up with that?Did our supermanagers, as Thomas Piketty calls them, suddenly all become super-responsive to the business cycle? Did they all bang their heads at the same time and suddenly become terribly unproductive, only to recover from their amnesia shortly thereafter? Under what version of marginal product does this pattern prevail? In fact, that pattern looks a lot like the movements in the stock market! J’accuse!

Recovery for Whom? - The official line is clear: The worst is over, and recovery has given way to expansion.But that’s not the whole story. Economic gains so far have mostly benefited those at the top of the income and wealth ladder. Worse, future growth is likely to be lopsided, because the foundation for broad prosperity is arguably the weakest it has been since World War II. Take, for example, Americans age 25 to 34, the leading edge of the so-called millennials, the generation born in the 1980s and 1990s. They are worse off than Gen Xers (born from the mid-1960s to the late-1970s) were at that age and the baby boomers before them by nearly every economic measure — employment, income, student loan indebtedness, mobility, homeownership and other hallmarks of “household formation,” like moving out on their own, getting married and having children.This group had the bad luck of entering the work force in the depressed and slow-growth years that started when the recession hit in 2007. Instead of spending the crucial early years of their work lives laying the groundwork for a solid economic future, many of them have struggled with unemployment and underemployment, and many have fallen so far behind where they would hope to be that recovering lost ground may well be impossible.According to the latest census data, nearly 16 percent of those in their mid-20s to mid-30s were in poverty in 2012, compared with just above 10 percent of Gen Xers in 2000 and baby boomers in 1980. Nearly 14 percent of that age group were living with their parents in 2013, a higher percentage than in previous generations. And of those living at home, 43 percent (2.5 million people) would be counted as being in poverty if they were on their own. Only 38 percent of those who were on their own were homeowners, compared with 46 percent from this age group who were on their own in 2000..

Low-wage workers pay the price of nickel-and-diming by employers - The continuing push for higher minimum wages across the country has much to recommend it, but the campaign shouldn't keep us from recognizing a truly insidious practice that impoverishes low-wage workers all the more. It's known as wage theft. Wage theft, as documented in surveys, regulatory actions and lawsuits from around the country, takes many forms: Forcing hourly employees off the clock by putting them to work before they can clock in or after they clock out. Manipulating their time cards to cheat them of overtime pay. Preventing them from taking legally mandated breaks or shaving down their lunch hours. Disciplining or firing them for filing lawful complaints. Nickel-and-diming pays well, for the employer. A study published in 2010 by a network of employment rights organizations calculated that employment and labor law violations cost low-wage workers in New York, Chicago and Los Angeles alone an estimated $56.4 million a week. In Los Angeles, where the survey was conducted by UCLA's Institute for Research on Labor and Employment, the respondents lost an average of 12.5% of their pay — $2,070 annually out of average pay of $16,500. "Companies can save a great deal of money by cutting labor costs," says Michael Rubin, a San Francisco labor lawyer who last month filed three lawsuits against McDonald's Corp. and its franchisees, alleging a raft of labor law violations at the chain's fast-food restaurants. "When you own a hundred restaurants, even small amounts add up quickly."

Punish wage theft as severely as robbery - Forget raising the minimum wage. How about enforcing the meager minimum already on the books? Over the past year, low-wage workers and their supporters have protested, struck and polemicized for a raise of some kind, a proposition that has support from the White House and most Americans, if not Republican politicians. But low-wage workers face an even more upsetting affliction that both parties should feel comfortable condemning: Employers are stealing from their employees, often with impunity. “Wage theft” is an old problem. It can take many forms, including paying less than the minimum hourly wage, working employees off the clock, not paying required overtime rates and shifting hours into the next pay period so that overtime isn’t incurred. Unfortunately, reliable data on the magnitude of the problem are scarce. Workers can be afraid to report the theft for fear of losing their jobs altogether, especially in today’s terrible economy, and many don’t know their rights. Often workers don’t even realize their pay is being skimmed.

Getting A Handle On Precisely How Screwed We Are - I love this kind of stuff. I've got time on my hands, so I was perusing the latest wealth/income inequality data. Long story short, denizens of Flatland, especially economists, love to measure shit. Based on recent work by Emmanuel Saez and Gabriel Zucman, both of UC-Berkeley, those happy House of Debt guys Atif Mian and Amir Sufi (University of Chicago) wrote a post called Measuring Wealth Inequality. Before I ridicule them, let's be clear what we're talking about. Consider this graph from Saez and Zucman. Although this graph indicates in no uncertain terms that the vast majority of Americans have always been fucked, it turns out that since 1980, Americans are even more fucked than they were before The Gipper got elected president. That's the main point made by Mian and Sufi. And here's my personal favorite, from The Richest Rich are in a Class by Themselves. Anyway, here's the happy House of Debt guys discussing all this. Wealth is as important as income for thinking about overall well-being.Wow! I didn't know that. That's deep. For example, wealth may be more important than income in predicting who can send their kids to an expensive college. And wealth also represents control. Corporations are controlled by shareholders. So a higher concentration of wealth naturally implies that fewer individuals control the decisions made by firms in the economy. Similarly, non-profit organizations (including universities) and political parties pay special attention to their wealthy donors... The first thing to notice about this text is what it does not contain. It does not say something like "Hey!, this is fucked up!" In short, it does not contain what we might call a moral judgement, or alternatively, a value judgement. Instead, these University of Chicago economists discuss the methodology which generated these appalling graphs. We get shit like "simple measurement is often a bit boring but it is absolutely critical for thinking about the overall economy."

Better Insurance Against Inequality -- Robert Shiller - Paying taxes is rarely pleasant, but as April 15 approaches it’s worth remembering that our tax system is a progressive one and serves a little-noticed but crucial purpose: It mitigates some of the worst consequences of income inequality. ...But it’s also clear that ... what we have isn’t nearly enough. It’s time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme. In testimony before the Senate Finance Committee last month, [Leonard] Burman proposed a version of inequality indexing that might be politically acceptable... His idea was to integrate inequality indexing with inflation indexing: Instead of just linking tax brackets to inflation..., he proposed that ... if inequality worsened, higher tax brackets would bear a bit more of the burden, and people at the bottom would bear less. A relatively minor change like this should be politically acceptable. It is a reframing of inflation indexing, which is already a sacrosanct principle, and would be revenue-neutral. ... Such a plan would be a nice first step toward making our tax system manage the risk of future increases in inequality.

Antitrust in the New Gilded Age, by Robert Reich: We’re in a new gilded age of wealth and power similar to the first gilded age when the nation’s antitrust laws were enacted. Those laws should prevent or bust up concentrations of economic power that not only harm consumers but also undermine our democracy — such as the pending Comcast acquisition of Time-Warner. ...In many respects America is back to the same giant concentrations of wealth and economic power that endangered democracy a century ago. The floodgates of big money have been opened...Remember, this is occurring in America’s new gilded age — similar to the first one in which a young Teddy Roosevelt castigated the “malefactors of great wealth, who were “equally careless of the working men, whom they oppress, and of the State, whose existence they imperil.” It’s that same equal carelessness toward average Americans and toward our democracy that ought to be of primary concern to us now. Big money that engulfs government makes government incapable of protecting the rest of us against the further depredations of big money.

Carolinas Lead National Fall in Unemployment Rate - The unemployment rate has fallen fast in the Carolinas. But the decline may not be the good omen it seems as the underlying reasons mirror broader trends that are causing some economists concern. The Labor Department on Friday said South Carolina’s rate plunged 2.5 percentage points over the past year to a seasonally adjusted 5.5%, and North Carolina’s dropped 2.2 points to 6.3%, outpacing the rest of the country. “We are creating jobs,” . That is the good news. “But we are also seeing people dropping out of the work force,” he added. And that might be a problem.North Carolina payrolls grew by 65,000 over the past year while the labor force shrank by 49,400, Labor Department data showed. South Carolina employment rose by 37,600, but 23,900 people quit looking for a job. The number of people dropping out of the labor force affects the way the unemployment rate is calculated: If you’re not looking for work, you don’t count as unemployed. And the pace of dropouts is part of wider national developments that have vexed economists and officials at the Federal Reserve.

Despite Positive News, Some States Still Suffer from a Weak Recovery - While the March state employment and unemployment report released today by the Bureau of Labor Statistics showed positive developments, a number of states are still suffering from a weak economic recovery. From December 2013 to March 2014, 34 states gained jobs, led by gains of 1.7 percent in North Dakota, 1.4 percent in Nevada, and 1.0 percent in both Rhode Island and Utah. Over the same period, 16 states plus the District of Columbia lost jobs. Alaska (-0.9 percent), Kentucky (-0.9 percent), and Mississippi (-0.6 percent) saw the largest job losses‎. During the same period, the unemployment rate declined in 35 states (and the District of Columbia), increased in 10 states, and was unchanged in 5 states. Renewing extended unemployment benefits would strengthen states’ economic recoveries and soften the impact of ongoing job loss in the aftermath of the Great Recession. State lawmakers finalizing their respective budgets would be wise to keep this in mind, and not risk causing further damage by cutting social safety net programs or assistance to the unemployed.

Using State-Level Data to Estimate How Labor Market Slack Affects Wages - Atlanta Fed's macroblog - At a recent speech in Miami, Atlanta Fed President Dennis Lockhart had this to say: Wage growth by most measures has been very low. I take this as a signal of labor market weakness, and in turn a signal of a lack of significant upward unit cost pressure on inflation. This macroblog post examines whether the data support this assertion (answer: yes) and whether wage inflation is more sensitive to some measures of labor underutilization than other measures (answer: apparently, yes). San Francisco Fed President John Williams touched on the latter topic in a recent speech: We generally look at the overall unemployment rate as a good yardstick of labor market slack and inflation pressures. However, its usefulness may be compromised today by the extraordinary number of long-term unemployed—defined as those out of the workforce for six months or longer... Standard models of inflation typically do not distinguish between the short- and long-term unemployed, because they're assumed to affect wage and price inflation in the same way. However, recent research suggests that the level of long-term unemployment may not influence inflation pressures to the same degree as short-term unemployment.

U.S. States Revive Debtors’ Prisons - A sordid feature of 19th century Victorian life was the debtor’s prison. People who could not pay their financial debt simply went to prison, punishment for not being wealthy. The point was often muddied, as from inside jail a person could most certainly not earn any money to pay off the debt, though one supposes the rich chortled knowing those who stiffed them suffered for the act. Between 1970 and 1982, in a series of cases, the Supremes did away with the practice once and for all as a violation of the 14th Amendment’s equal protection clause. Until now of course. More and more states have revived the debtors prison, albeit in a specific form, locking people up for failure to pay court costs and fees. Like so many other things in America, shortfalls in budgets are made up not by raising taxes (or heaven forbid, fiscal prudence) but by new arrays of costs and fees paid by people in the criminal justice system. We are not referring to fine or penalty (ex. speeding ticket=$250) here, but to that thing the judges say on TV– “Guilty, with a fine of $300 and court costs. Next case please.” The new costs can be dizzying. The Brennan Center at New York University reports: Some jurisdictions have haphazardly created an interlocking system of fees that can combine to create insurmountable debt burdens. Florida has added more than 20 new fees since 1996. In 2009, North Carolina instituted late fees for failure to pay a fine, and added a surcharge for being placed on a payment plan. Jurisdictions in at least nine states charge people extra fees for entering into payment plans, which are purportedly designed to make payments easier.

These Are America's Most And Least "Taxing" States (And Everything Inbetween) -- One of the most consistent debates emanating out of Washington in the past 6 years has been that dealing with income tax. Whether high, low, "fair" or "unfair", said discussions, however, focus solely on tax paid at the Federal level, and largely ignore that "other" key tax: state. Which is surprising, considering some states such as California demand a total contribution amounting to a third of the highest marginal Federal tax bracket, which could make some wonder if those bracing sea breezes are really worth it. But what about the other states? Here is the full breakdown of the states with the top income tax rates, those with the lowest, and all the states inbetween.

Return on taxes paid to the federal government: This illustrates how many dollars in federal funding state taxpayers receive for every one dollar in federal income taxes they pay. It excludes from the federal funding the loans/guarantees component because it does not represent permanent transfers from the federal government to a state.

Federal funding as a percentage of state revenue: This metric shows how much of a state’s annual revenue, and theoretically its spending, is provided by the federal government. Without this money, revenue would have to be found elsewhere – perhaps via tax hikes – or else key state services would suffer.

Number of federal employees per capita: This metric speaks to the federal government’s role as a nationwide employer, indicating the percentage of a state’s workforce that owes its very livelihood to Washington.

Red states are known for imposing lower taxes than blue states, but it appears they are able to do so because they are more dependent on federal funding. There was a 34.4 percent correlation between a state’s federal dependency and its tax rates, meaning the more dependent a state is on the federal government, the less likely it is to charge high tax rates. Red states had an average dependency ranking of 33.5, while blue states ranked 19.2 on average. Let’s take a look at the 10 states most dependent on the government, according to WalletHub.

Oklahoma governor signs law barring cities from raising minimum wage -- Cities across Oklahoma have been barred from setting mandatory minimum wage, vacation or sick-day requirements under a bill signed into law this week by Gov. Mary Fallin. Critics of the bill say it specifically targets Oklahoma City, where an initiative is underway to establish a citywide minimum wage higher than the current federal requirement of $7.25 an hour. Organizers have been gathering signatures on a petition to support raising the city's minimum $10.10 – a rate currently being advocated by President Barack Obama on the national level. David Slain, the lawyer who wrote the petition, said said he is disappointed that the state’s legislature "would vote in such a way to take the right of the people to decide minimum wage." He said the grass-roots effort would continue, with hopes of getting 4,000 signature by the end of April. A total of 80,000 are needed to bring the initiative to a statewide vote. After the governor signed the law on Monday, her office released a statement that said raising the minimum wage is not an effective way to bring people out of poverty.

New York Lawmakers Push to Raise Wages at Biggest Chains - A group of Democratic lawmakers from New York City on Wednesday announced a new push to raise the minimum wage for many low-paid workers, calling for a $15-an-hour “fair wage” for employees of McDonald’s and Walmart and other businesses with yearly sales of $50 million or more.“We shouldn’t have the largest, most profitable companies be the ones that most squeeze their workers,” said State Senator Daniel L. Squadron at a news conference on the steps of City Hall.Mr. Squadron’s bill, whose backers include State Senator Liz Krueger of Manhattan and Assemblywoman Nily Rozic of Queens, would also apply to chain stores and restaurants with at least 11 locations nationwide, including their franchisees, and businesses involved with transportation like subcontractors at airports. Manufacturers would be exempt. The bill will face an uphill climb in Albany, where the Legislature last year approved letting the minimum wage rise to $9 an hour. Earlier this year, Gov. Andrew M. Cuomo, a Democrat, and legislative leaders quickly shot down a proposal by Mayor Bill de Blasio to let New York City set its own minimum wage.

Suburbs Try to Prevent an Exodus as Young Adults Move to Cities and Stay - It is a well-trod trail: Suburban youngsters enter their early 20s, leave their parents’ comfortable Tudors or colonials for the pizazz of the city, dawdle a few years until they find mates and begin having children and then, seeking more space and good public schools, move back to the suburbs and into their own Tudors or colonials.But that pattern is changing, or at least shifting. A recent report on the suburb-dotted New York counties of Westchester, Nassau and Suffolk, based on United States census data, found that those young people seem to be lingering longer in New York City, sometimes forsaking suburban life entirely.Demographers and politicians are scratching their heads over the change and have come up with conflicting theories. And some suburban towns are trying to make themselves more alluring to young residents, building apartment complexes, concert venues, bicycle lanes and more exotic restaurants. Since 2000, Westchester, Nassau and Suffolk have experienced a drop in the number of 25- to 44-year-olds, with the declines particularly sharp in more affluent communities. Between 2000 and 2011, Rye, for example, had a 63 percent decrease in 25- to 34-year-old residents and a 16 percent decrease in 35- to 44-year-olds.New York suburbs are not the only ones getting somewhat grayer. In three Maryland suburbs outside Washington, Chevy Chase lost 34 percent of its 25- to 34-year-olds, Bethesda 19.2 percent and Potomac 27 percent. The declines were comparable for Kenilworth, Winnetka and Glencoe outside Chicago, and Nantucket, Barnstable and Norfolk Counties outside Boston.

One in five US children do not have enough to eat - Feeding America, the US national network of food banks, released its annual report on local food insecurity Thursday, showing that there are dozens of counties throughout in the US where a third of children do not get enough to eat. Fourteen million people, or 16 percent of the population, lived in food insecure households in 2012, the latest year for which figures are available. This is up from 11.1 percent in 2007. The level of food insecurity among children is even worse, affecting a staggering 16 million children, or 21.6 percent. “Food insecurity is higher than at any time since the Great Depression,” said Ross Fraser, director of media relations for Feeding America, the national network of charitable food banks. “One in six Americans live at risk of hunger, as do one in five children,” he added.

The Single Mother, Child Poverty Myth - I see it often claimed that the high rate of child poverty in the US is a function of family composition. According to this view, the reason childhood poverty is so high is that there are too many unmarried parents and single mothers, and those kinds of families face higher rates of poverty. The usual upshot of this claim is that we can't really do much about high rates of childhood poverty, at least insofar as we can't force people to marry and cohabitate and such. One big problem with this claim is that family composition in the US is not that much different from family compositions in the famed low-poverty social democracies of Northern Europe, but they don't have anywhere near the rates of child poverty we have. A number of studies have tested this family composition theory using cross-country income data and found, again and again, that family composition differences account for very little of the child poverty differences between the US and other countries.

When Will Big Business Figure Out That the Education-Industrial Complex is Eating its Lunch? - The Washington Post recently reported that Day Care now costs more—in 31 U.S. states—than a college education. In a fit of logic rarely exhibited in today’s journalism, the article explains that since it takes the average family eighteen years to save enough for a child’s college education, that same child now needs to start saving for his or her own children’s Day Care beginning at age eight. Please consider for a moment the existential dilemma posed by this logical absurdity—and what it says about the American free-enterprise system we’re so genuinely proud of. What’s great about America is that everyone has the chance to earn a good life for themselves. America’s Catch 22, however, is that you’ve got to earn that good job before you can start earning your good life. The education required to get a good job—beginning with the pre-school day care that prepares you to succeed in public school so you can then qualify to pay for college or culinary or auto-mechanic school—that education package is the first “commodity” your good life requires you to buy. If you’re lucky enough to have a functional family that can earn and save for you, by the time you’re eighteen you should have enough to meet college tuition payments. Except now we realize there’s a good chance you might not have graduated from high school because your mom couldn’t afford the pre-school day care that might have taught you the early reading and learning skills that would have gotten you off to a running start in second and third grade, but without which you struggled, fell behind, and finally decided that school itself was for the birds because you couldn’t learn anything no matter how hard you tried, and it was easier just to be cool, although that, in itself, was a challenge that seemed to require buying things, which you couldn’t do since you couldn’t earn because you had no hope, really, of getting a job—so you might have been forced to take up shoplifting or petty burglary or worse, just to be cool, because if you couldn’t get an education and therefore a job so you could earn money to buy things to create a good life, the only thing left to strive for was just to be cool. And meanwhile, the rest of us are having to pay good tax dollars to catch you, prosecute you, and incarcerate you, which simply transforms you irrevocably into an angry human being whose chance at earning a good life has been utterly destroyed and wasted.

Jack Halprin: As a Google Attorney, I Need the Homes of 7 Teachers, and Here's Why --There's been a lot of misinformation recently about my decision to buy a seven-unit San Francisco home and evict all the other tenants, including a city school teacher, just so I can have the place to myself. People are saying it's a bad thing. Somehow they're using Google to spread this lie. It had never before occurred to me that such a thing could happen. So I need to clear the record: as a Google employee, I need the homes of seven school teachers to survive. It's just a fact of life, like the food chain, or the singularity. People like me, who are in the tech sector, who are changing the world, simply outrank people like teachers, who can never shape the future. Not when all they have are the primitive brains of children to work with. Have you seen those things? Most of them can't even play chess, let alone return ranked search results. Trust me when I say this -- I've seen the research -- children are not our future. Designer polymers are. Not only are they smarter, they're easier to trademark. What I'm trying to say is that, in a free society, some people make better choices than others, and we reward those people with the homes of their vanquished enemies. Some people, for example, choose to be teachers, and spend their lives teaching other people's kids things that they can Google for free. Naturally, we pay them very little money -- so little that they're practically homeless already. Frankly, I'm surprised that anyone even notices when I evict someone making under $150,000 a year. Honestly, how can you tell?

Small U.S. Colleges Battle Death Spiral as Enrollment Drops - Dowling, which got a failing grade for its financial resources from accreditors last month, epitomizes the growing plight of many small private colleges that depend almost entirely on tuition for revenue. It’s been five years since the recession ended and yet their finances are worsening. Soaring student debt, competition from online programs and poor job prospects for graduates are shrinking their applicant pools. “What we’re concerned about is the death spiral -- this continuing downward momentum for some institutions,” said Susan Fitzgerald, an analyst at Moody’s Investors Service in New York. “We will see more closures than in the past.” Moody’s, which rates more than 500 public and private nonprofit colleges and universities, downgraded an average of 28 institutions annually in the five years through 2013, more than double the average of 12 in the prior five-year period. Dozens of schools have seen drops of more than 10 percent in enrollment, according to Moody’s. As faculty and staff have been cut and programs closed, some students have faced a choice between transferring or finishing degrees that may have diminished value.

Soaring Tuition Costs Force Students To Work More Hours: Analysis: Many university students have to work double, triple and in some cases six times the number of hours in minimum-wage jobs to afford tuition costs compared to 40 years ago, according to Statistics Canada data analyzed by the Canadian Centre for Policy Alternatives. According to the data, which track tuition costs from 1975 to 2013, the average number of minimum-wage hours needed to pay for an undergraduate degree in 1975 was 230. That number went up nearly 2½ times to 570 by 2013. Professional faculties have seen the steepest increases. A dentistry student would have had to work 286 hours at a minimum-wage job in 1975 to afford the tuition fee then of $664. In 2013, that same student had to labour for 1,711 hours to pay annual tuition costs of $17,324. The national think-tank acquired tuition data from 1975 to 2013 and compiled a database that compares faculty costs, provincial variations and national tuition cost averages.

"Death Spiral" - Harvard Professor Predicts Up To Half Of US Universities May Fail In 15 Years -- Soaring student debt, competition from online programs and poor job prospects for graduates are shrinking the applicant pools for many universities and, as Bloomberg reports, the National Association of Independent Colleges and Universities warns "there will clearly be some institutions that won’t make it..through these difficult steps." Rather stunningly, Moody’s found that expenses are outpacing revenue at 60 percent of the schools it tracks even as many try to slash their way to balanced budgets," and concluded "what we’re concerned about is the death spiral... this continuing downward momentum for some institutions." As Harvard professor Clayton Christensen has warned, as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years, and is "not sure a lot of these institutions have the cushion to experiment with how to stay afloat."

What Can You Do With a Humanities Ph.D., Anyway? -- There is a widespread belief that humanities Ph.D.s have limited job prospects. The story goes that since tenure-track professorships are increasingly being replaced bycontingent faculty, the vast majority of English and history Ph.D.s now roam the earth as poorly-paid adjuncts or, if they leave academia, as baristas and bookstore cashiers. As English professor William Pannapacker put it in Slate a few years back, “a humanities Ph.D. will place you at a disadvantage competing against 22-year-olds for entry-level jobs that barely require a high-school diploma.” His advice to would-be graduate students was simple: Recognize that a humanities Ph.D is now a worthless degree and avoid getting one at all cost. Since most doctoral programs have never systematically tracked the employment outcomes of their Ph.D.s, it was hard to argue with Pannapacker when his article came out. Indeed, all anecdotal evidence bade ill for humanities doctorates. In 2012, the Chronicle of Higher Education profiled several humanities Ph.D.s who were subsisting on food stamps. Last year, the Pittsburgh Post-Gazetteeulogized Margaret Mary Vojtko, an 83-year-old French adjunct who died in abject poverty after teaching for more than two decades at Dusquesne University, Recent studies suggest that these tragedies do not tell the whole story about humanities Ph.D.s. It is true that the plate tectonics of academia have been shifting since the 1970s, reducing the number of good jobs available in the field: In the wake of these changes, there is no question that humanities doctorates have struggled with their employment prospects, but what is less widely known is between a fifth and a quarter of them go on to work in well-paying jobs in media, corporate America, non-profits, and government.

CA teachers’ retirement unfunded liability hits new high - The California State Teachers’ Retirement System just announced it faces $73.7 billion in long-term liabilities. Left untouched, that would spell bankruptcy in 2043.For critics of California’s public-employee pensions programs, the grim numbers heighten the urgency for reform. If CalSTRS wants to address its shortfall, it has to get legislative approval. CalSTRS is the product of a contract with the state of California. Most experts say its funding is guaranteed by the California Constitution. So the state government is responsible for ensuring that CalSTRS remains solvent. CalSTRS CEO Jack Ehnes has admitted that it’s essential to raise rates, shifting pressure to the Legislature.

CalPERS adopts $459 million pension rate hike - CalPERS approved nearly a half-billion dollars in pension contribution rate increases Wednesday. The big pension fund approved a $459 million rate increase for the state, bringing the state’s contribution to around $4.3 billion a year. The fund also approved a $55 million increase for school districts, to $1.12 billion. The state’s higher rates will kick in with the start of the new fiscal year in July, while the schools’ increase will begin in 2016. The increases are in line with what the California Public Employees’ Retirement System predicted in February, when it approved a broad set of new financial assumptions. The assumptions are mainly based on recent studies showing longer life expectancies for retirees, prompting additional funding. More is coming; the rate hikes approved Wednesday marked phase one of a series of increases planned for the next few years. All told, the state’s annual contribution to CalPERS is expected to rise by about $1.2 billion when the new assumptions are fully phased in, to a total of about $5 billion.

Borrowing for pension costs soar in NY; up 22% to $472M this year: Local governments and the state increased borrowing off the state pension fund to pay yearly retirement costs by 22 percent between 2013 and this year, Gannett's Albany Bureau reported today. As pension costs soar, 133 municipalities deferred $472 million in retirement obligations this year -- a record amount, data from the state Comptroller’s Office showed. Last year, 139 employers borrowed $368 million. Some of the state’s largest municipalities have been the largest beneficiaries of the program, which covers the pension costs for public workers and police and fire employees. Westchester County is borrowing $43.5 million to pay off its more than $100 million pension tab. That’s up from $25 million borrowed in 2013. “ Local governments readily admit that delaying pension costs, plus interest, isn’t great fiscal policy. They said, though, they have no alternative as they grapple with limited revenue, growing bills and a property-tax cap that restricts how much they can raise in new money.

Has Social Security Disability Enrollment Hit Plateau? - The surge in the number of Americans receiving Social Security disability benefits – up 42% since 2004 – appears to have hit a plateau, but it’s unclear if the program has actually peaked and will ever recede. The number of Americans receiving benefits hit 10,939,936 in March 2013, and has hovered around that level for the past year, according to Social Security Administration data. The program topped out at 10,988,269 in December and then retreated a bit. As of March, total enrollees hit 10,981,423. Average monthly benefits have ticked up slightly, to $995.38. The program has become so large that budget watchers have estimated it could exhaust all of its trust fund reserves sometime in 2016 or 2017. But as people have watched it grow, some experts have wondered if it would ever stop growing. Now they know – it leveled off, at least for now.

Misdirection: Rampell Views Entitlements Through the Generational War Lens --Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:”Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.”She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:”But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.”This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.

“Awesome in its evilness”: How to make GOP pay for its Medicaid nightmare -- Liberal backers of Obamacare have increased their fury in recent weeks over how 24 states, controlled in part or in whole by Republicans, have rejected the law’s Medicaid expansion, which the Supreme Court ruled they could do without consequences back in 2012. This has denied 5 million Americans health insurance coverage. “It really is just almost awesome in its evilness,” said Jonathan Gruber, one of the architects of healthcare reform. “It appears to be motivated by pure spite,” added Paul Krugman. “I am burying my best friend because of the policies of the Republican Party,” remarked one anguished woman in a viral story about Charlene Dill, a 32-year-old from Florida who would have been covered by Medicaid under the expansion, but instead went without the care she needed, and collapsed while working. People are right to be outraged. These states are turning down full funding for the expansion for three years, and 90 percent thereafter, declining the economic stimulus from the flow of that Medicaid money. And this will lead to somewhere between 7,000 and 17,000 preventable deaths due to a lack of coverage, according to public health researchers. Charlene Dill’s story will unquestionably be repeated throughout the country. The fact that these red states sued to overturn all of Obamacare should have been a tipoff that they wouldn’t exactly jump at the chance to expand coverage under the law, if they could opt out instead. Liberals mistakenly performed a cost-benefit analysis, thinking rationally, what state would turn down free money from the federal government to cover their poorest citizens? (In fact, that’s exactly what Jon Gruber admitted he thought initially.) But there’s nothing logical about knee-jerk opposition to anything proposed by the president, which has been the status quo in the Republican Party since Inauguration Day 2009. Indeed, Republicans predictably distorted the share that states would have to pay for the expansion, and highlighted the risk that Congress would at some point stick the states with a higher bill. That was enough of a sliver to give Republicans the talking points they needed to reject the expansion.

The AP downplays its Obamacare scoop - Earlier this week, David Espo of The Associated Press broke the news that an unlikely alliance of Democrats and Republicans in Congress had quietly repealed a significant provision of the Affordable Care Act. But, oddly, the AP piece downplayed its own scoop, calling the rule in question “relatively minor,” and focusing instead on decoding what’s happening within the Republican caucus. It was a clear example of how politics often trumps policy in DC reporting. The AP piece that revealed as part of the latest “doc fix,” the perennial legislation needed to maintain Medicare payments to doctors, lawmakers had eliminated the cap on deductible for insurance policies sold to employees of small businesses. Before the change, the law had limited deductibles to $4,000 for family policies and $2,000 for individual coverage in small-group plans offered through the new exchanges. The administration had already waived these caps through 2015, and the “legislation means they will never go into effect,” the AP reported. You can see why this might be considered a small change. There’s already no deductible cap for individual and large-group plans, and the cap that was in place for small-group plans was never implemented. The AP says outright that the substance of the move is “relatively minor,” and focuses instead on the congressional politics: This was a rare case of the House GOP actually trying to change the law, a “one-of-a-kind departure from dozens of high-decibel attempts to repeal or dismember it.” There’s also some intrigue, in that it’s not clear how many Republicans in Congress actually knew what was being approved. “No member of the House GOP leadership has publicly hailed the fix,” Espo wrote, noting the legislation was passed “by a highly unusual voice vote without debate.”

Insurer Push on Obamacare Premiums Tops Burwell Challenge - The first challenge Sylvia Mathews Burwell may face as the nation’s top health official could come from the insurance industry. WellPoint Inc. (WLP), the biggest commercial insurer in the health law’s exchanges, said last month it may seek “double-digit plus” premium increases for 2015. While many other insurers have declined to comment on next year’s rates, large price increases may chase people away in Year 2 of Obamacare, giving foes impetus to push changes. Republicans say Burwell will be asked during confirmation hearings to answer questions that her predecessor as health and human services secretary, Kathleen Sebelius, avoided. That includes whether the ratio of healthy, young people to older Obamacare enrollees will cause insurers to raise prices next year. HHS may be reviewing proposed rates for 2015 plans, due in June, during the leadership transition “Timing isn’t the best here,” . “She could turn Obamacare around come Nov. 15, but it’s got to be done now.”

Medical Inflation Is Up, But It's Probably Just a Blip -- Sarah Kliff reports that health care spending ticked upward at the end of 2013: A four-year slowdown in health spending growth could be coming to an end....Federal data suggests that health care spending is now growing just as quickly as it was prior to the recession.....The Altarum Institute in Ann Arbor, Mich. tracks health spending growth by month. It saw an uptick in late 2013 that has continued into preliminary numbers for 2014. Separate data from the Bureau of Economic Analysis, which tracks the growth or consumer spending by quarter, shows something similar: health spending grew by 5.6 percent in the last quarter of 2013, the fastest growth recorded since 2004. Inflation in the final quarter of 2013 ran a little over 1 percent, which means health care spending rose 4.5 percent faster than the overall inflation rate. That's a lot. But it's also only one quarter, and it's hardly unexpected. Take a look at the chart on the right, which shows how much per capita health care spending has increased over and above the inflation rate for the past 40 years. There are two key takeaways:

Medical inflation has been on a striking long-term downward path since the early 80s.

There's a ton of noise in the data, with every decline followed by a subsequent upward correction.

ACA Insurance Coverage Cost Update from CBO -- Estimated insurance coverage costs revised downward. Figure 3 from CBO, Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act, April 2014. Relative to their previous projections, CBO and JCT now estimate that the ACA’s coverage provisions will result in lower net costs to the federal government: The agencies now project a net cost of $36 billion for 2014, $5 billion less than the previous projection for the year; and $1,383 billion for the 2015–2024 period, $104 billion less than the previous projection. The estimated net costs for 2014 stem almost entirely from spending for subsidies that are to be provided through insurance exchanges (often called marketplaces) and from an increase in spending for Medicaid… Those estimates address only the insurance coverage provisions of the ACA, which do not generate all of the act’s budgetary effects. Many other provisions, on net, are expected to reduce budget deficits. Considering all of the provisions—including the coverage provisions—CBO and JCT estimated in July 2012 (their most recent comprehensive estimate) that the ACA’s overall effect would be to reduce federal deficits. Note that the overall budgetary effect of the ACA is to reduce federal deficits. As indicated in CBO’s 2012 estimate, repeal of the ACA would have resulted in a ten year increase in budget deficits of over $100 billion.

How Much Will You Pay for Health Care in 2015? What You Need to Know About Healthcare Inflation - You probably have seen headlines like this one: “O-Care premiums to skyrocket.” The warning, which was posted on The Hill, seemed designed to cheer conservatives distraught by Obamcare’s enrollment numbers. It began by announcing that next year, “premiums will double in some parts of the country. The sticker shock will likely bolster the GOP’s prospects in November and hamper ObamaCare insurance enrollment efforts in 2015.” Where did the reporter get her information? The story is based on interviews with “health insurance officials.” Why would they issue such dire predictions? Perhaps they are trying to soften us up so that when insurance rates rise by “only” 7% to 10%, we’ll be surprised and grateful? (This is just a thought.) The truth is that there is absolutely no reason to believe the same old, same old, fear-mongers who claim that in 2015, rates will spiral “by 200% to 300%.” But what about those who predict double-digit hikes? Wellpoint, the biggest commercial insurer in the Exchanges, recently told Bloomberg that it may ask for “double-digit plus” increases when it proposes 2015 rates sometime next month. Wellpoint can propose whatever it wishes, but I very much doubt that state regulators would accept such stiff increases. A combination of regulation and competition will keep a lid on premiums both in the Exchanges, and off-Exchange, just as it did this year. My guess is that, in most states, rates will rise by no more than 2% to 4%.

Insurers see brighter Obamacare skies - Health insurers got their first taste of Obamacare this year. And they want seconds. Insurers saw disaster in the fall when Obamacare’s rollout flopped and HealthCare.gov was a mess. But a strong March enrollment surge, along with indications that younger and healthier people had begun signing up, has changed their attitude. Around the country, insurers are considering expanding their stake in the Obamacare exchanges next year, bringing their business to more states and counties. Some health plans that skipped the new marketplaces altogether this year are ready to dive in next year. At least two major national insurers intend to expand their offerings, although a handful of big players like Aetna, Humana and Cigna, are keeping their cards close for now. None of the big-name insurers have signaled plans to shrink their presence or bail altogether after the first rocky year. And a slew of smaller health plans are already making moves to join more states or get into the Obamacare business for the first time.

Healthcare law to cost less than thought - FT.com: Barack Obama’s healthcare law will cost the US government less than previously thought, helping to cut the budget deficit this year by more than expected, according to the non-partisan congressional budget agency. In its latest projections, the Congressional Budget Office cut its estimate for the cost of the US president’s signature law in 2014 by $5bn to $36bn, saying the government would pay fewer subsidies than expected to people buying insurance. The White House spokesman Jay Carney said the CBO’s forecasts on costs and other parts of the law, which included lower insurance premiums than expected, were “welcome news”. They followed last week’s resignation of Kathleen Sebelius, the health secretary who oversaw the law’s disastrous rollout, and came after the White House met its target of enrolling more than 7m Americans for insurance on new healthcare exchanges. The law, known as the Affordable Care Act, or “Obamacare”, remains unpopular with many people. Republicans have criticised it for imposing unacceptable costs on taxpayers and for increasing the size of government. On the overall budget, the CBO said the US deficit would drop to 2.8 per cent of gross domestic product, or $492bn, this year, compared with its February estimate of 3 per cent of economic output, or $514bn.

Census Survey Revisions Mask Health Law Effects - The Census Bureau, the authoritative source of health insurance data for more than three decades, is changing its annual survey so thoroughly that it will be difficult to measure the effects of President Obama’s health care law in the next report, due this fall, census officials said.The changes are intended to improve the accuracy of the survey, being conducted this month in interviews with tens of thousands of households around the country. But the new questions are so different that the findings will not be comparable, the officials said.An internal Census Bureau document said that the new questionnaire included a “total revision to health insurance questions” and, in a test last year, produced lower estimates of the uninsured. Thus, officials said, it will be difficult to say how much of any change is attributable to the Affordable Care Act and how much to the use of a new survey instrument. “We are expecting much lower numbers just because of the questions and how they are asked,” said Brett J. O’Hara, chief of the health statistics branch at the Census Bureau. With the new questions, “it is likely that the Census Bureau will decide that there is a break in series for the health insurance estimates,” says another agency document describing the changes. This “break in trend” will complicate efforts to trace the impact of the Affordable Care Act, it said.

Will Slowdown in Health-Care Spending Growth Persist? -- One of the biggest questions hovering over the federal budget – and, indeed, over the U.S. economy – is whether the recent slowdown in the pace of health-care spending growth will persist. Experts disagree. Here’s a taste of the debate. It won’t persist, says Louise Sheiner, a Federal Reserve Board economist. The pace of health-care spending growth follows the economy – but with a long lag. When a recession hits, people do cut back a bit on their health spending, but the big effects come four or five years later because it takes a long time for employers to decide to cut costs and then to change their insurance plans (say to make workers pay more of the tab, or to encourage more workers to shift to managed-care plans) and then for workers to respond. “The slowdown in health spending growth observed since 2002 is largely the result of the two recessions that occurred in the last decade, rather than representing a new innovation,” Ms. Sheiner argues. Her bet: The ripple effects of the Great Recession are going to wear off soon and health-care spending growth rate will rebound. Indeed, says Charles Roehrig of the Altarum Institute, preliminary data point to a pickup in the pace of health spending growth in late 2013 and early 2014. National health spending in February was 6.7% over year-earlier levels. That’s the fastest year-over-year growth rate since March 2007, just before the recession began. Some of this reflects the start of the Affordable Care Act, which expanded the number of people with health insurance, but not most of it, he says.

Health Care Spending’s Recent Surge Stirs Unease— For years, because of structural changes in the health care delivery system and the deep economic downturn, the health care “cost curve” — as economists and policy makers call it — had bent. Health spending was growing no faster than spending on other goods or services, an anomaly in 50 years of government accounts. But perhaps no longer. A surge of insurance enrollment related to rising employment and President Obama’s health care law has likely meant a surge of spending on health care, leaving policy experts wondering whether the government and private businesses can control spending as the economy gets stronger and millions more Americans gain coverage. “Following several years of decline, 2013 was striking for the increased use by patients of all parts of the U.S. health care system,” Murray Aitken, executive director of the IMS Institute for Healthcare Informatics, said in a statement. The news comes as President Obama promotes the success of the Affordable Care Act in covering more Americans at less cost than anticipated. But some health care experts and economists said that an expanded use of the health system might start to have the opposite effect. Americans feeling more economically confident might demand more procedures from doctors and hospitals. Insurers paying more money for those procedures might, in time, increase premiums, cutting into wage gains. The government might end up spending more on the health law than current projections imply.

What Eight Million Means - Paul Krugman - Final enrollment for 2014, we now know, will be more than 8 million. The age mix has also improved, with more young people signing up at the end; as Jonathan Cohn points out in the linked article, the age mix in Obamacare’s first year is now just about identical to the age mix in Romneycare’s first year. Goodbye, death spiral. How did enrollment manage to surge so impressively despite the initial debacle of healthcare.gov? Obviously they fixed the website; but the broader issue, as Sarah Kliff rightly points out, is that being uninsured is truly terrible. Uninsured Americans really, really wanted coverage, and they weren’t ready to give up. Kliff doesn’t make this point too explicitly, but this diagnosis has another crucial implication: the benefits of Obamacare, for all its imperfections, are immense. Millions of people who lived extremely anxious lives now have far more security than before. Compared with those benefits, the complaints of some already insured people that they have less choice of doctors than before, or that they’re no longer allowed to retain minimalist plans, look like whining. And speaking of whining, the GOP response seems to be to make every possible insinuation to the effect that the numbers are somehow fraudulent. I actually don’t think there’s a game plan here; their whole position was premised on the inevitable collapse of health reform, and they have no plan B.

Will Obamacare help or hurt your business? -- The frenzied push toward the recent deadline for individual Obamacare coverage overshadowed a separate issue: Soon, some small-business owners will have to consider whether and how to enroll in their own, separate health-insurance exchanges. Many small-business owners are still weighing their options under the health-care law, as a panel of financial advisers discussed at a recent small-business roundtable in San Francisco,. “It’s so new, and everyone is learning as they go along,” In addition to individual marketplaces, the Affordable Care Act—otherwise known as Obamacare—established the Small Business Health Options Program (SHOP). Each state has a SHOP exchange that serves businesses with 50 or fewer full-time workers. (Starting in 2016, all SHOPs will be open to employers with up to 100 workers.) The federal government operates the SHOP marketplace in 33 states, while 17 states and the District of Columbia are running their own, according to the Commonwealth Fund, a private foundation. Although certain parts of the SHOP program have been delayed, most SHOP marketplaces are open for business now, at least for paper enrollment. (Only a couple states haven’t launched yet—Mississippi’s SHOP is slated to open next month; Washington state is scheduled to open statewide next year, up from a couple counties currently; and Oregon has not yet set a launch date, according to a spokeswoman.) Businesses with fewer than 50 employees, which according to the lobbying group Small Business Majority account for nearly 28% of the private sector workforce, are not obligated to provide health insurance for their workers. Businesses with 100 or more employees must provide coverage or pay a fine starting in 2015, while the requirement for midsize firms with 50 to 99 workers kicks in the following year.

Cost of Treatment May Influence Doctors - Saying they can no longer ignore the rising prices of health care, some of the most influential medical groups in the nation are recommending that doctors weigh the costs, not just the effectiveness of treatments, as they make decisions about patient care.The shift, little noticed outside the medical establishment but already controversial inside it, suggests that doctors are starting to redefine their roles, from being concerned exclusively about individual patients to exerting influence on how health care dollars are spent .In practical terms, new guidelines being developed by the medical groups could result in doctors choosing one drug over another for cost reasons or even deciding that a particular treatment — at the end of life, for example — is too expensive. In the extreme, some critics have said that making treatment decisions based on cost is a form of rationing. Traditionally, guidelines have heavily influenced the practice of medicine, and the latest ones are expected to make doctors more conscious of the economic consequences of their decisions — even though there is no obligation to follow them. Medical society guidelines are also used by insurance companies to help determine reimbursement policies.The society of oncologists, alarmed by the escalating prices of cancer medicines, is developing a scorecard to evaluate drugs based on their cost and value, as well as their efficacy and side effects. It is expected to be ready by this fall.And the American College of Cardiology and the American Heart Association recently announced that they would begin to use cost data to rate the value of treatments in their joint clinical practice guidelines and performance standards.

Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs - The New York Times published another article in its series on the high cost of US health care. This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them. - The article first discussed the brave new world of type 1 diabetes treatment. Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies: That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific. A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350. But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day. Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations: Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research. Yet now the Times reporter was able to find physicians who claim the “innovations” are really just the latest version of planned obsolescence: Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.

The Richer You Are the Older You’ll Get -- Money may not buy love, but it appears to buy years. Economist Barry Bosworth at the Brookings Institution crunched the numbers and found that the richer you are, the longer you’ll live. And it’s a gap that is widening, particularly among women. Mr. Bosworth parsed this data from the University of Michigan’s Health and Retirement Study, a survey that tracks the health and work-life of 26,000 Americans as they age and retire. The data is especially valuable as it tracks the same individuals every two years in what’s known as a longitudinal study, to see how their lives unfold. Here’s the sort of detail this remarkable data set can show. You can look at a man born in 1940 and see that during the 1980s, the mid-point of his career, his income was in the top 10% for his age group. If that man lives to age 55 he can expect to live an additional 34.9 years, or to the age of 89.9. That’s six years longer than a man whose career followed the same arc, but who was born in 1920.For men who were in the poorest 10%, they can expect to live another 24 years, only a year and a half longer than his 1920s counterpart. But for women, the longevity and income trends are even more striking. While the wealthiest women from the 1940s are living longer, the poorest 40% are seeing life expectancy decline from the previous generation. (see bar graphs)

First, let's look at the guys. A rich man (top decile) born in 1940 can expect to live 10 years longer after he turns 55 than a poor man (bottom decile). That longevity gap grew by four years in one generation. Women live longer than men, overall. But their inequality gap getting worse. A rich woman at 55 can expect to live a decade longer than a poor woman, too. But this gap grew even more between the Silent and early Boomer generations, by six years. Here's the money chart and it tells a really sad story. In the richest country in the world, the expected lifespan of middle- and lower-income women is actually declining. At every income level, more money means more life.

Deadly Virus's Spread Raises Alarms in Mideast - WSJ.com: Saudi Arabia on Sunday confirmed a surge of cases of a deadly virus in the kingdom over the past two weeks, even as it tried to counter criticism that it wasn't doing enough to contain the outbreak. The United Arab Emirates over the weekend separately announced six confirmed cases of Middle East Respiratory Syndrome, or MERS, among paramedics there, one of whom died of the illness. The high number of cases among medical workers raised questions about how effective Arab Gulf governments have been in controlling the 1½-year-old outbreak."I'm not pretty sure that they are actually seeing how big this thing is," a Saudi doctor said on Sunday at King Fahd General Hospital, the large public hospital in Jeddah that has been hardest hit by a spike in the city this month. The hospital reopened its emergency room on Friday after shutting it briefly for what authorities said was disinfection measures against MERS. But patients were avoiding the hospital, and health workers were "very worried" after the MERS death of one colleague and sickness in another, the doctor said. "What I really wish for is to shut the whole hospital down" until the spread subsides, she said. Last week marked the biggest number of cases since the outbreak began, Dr. Ian M. Mackay, an Australian epidemiologist who has tracked the outbreak, wrote on Sunday. About 50 of the overall cases have been in health-care workers, he said, a strong warning sign about measures being taken to control the outbreak, he and others have said. "As far as we know, MERS-CoV does not spread easily from person-to-person, so these clusters suggest a breakdown in infection prevention and control."

How the Junk Food Industry Preys on the Young in Emerging Markets - “There is nothing called junk food. The problem with obesity lies with children who do not exercise enough. What is needed is for them to run and jump, and to do this they need to consume high-calorie food. So, food high in salt, sugar and fat is good for them.” This is what was argued vehemently and rudely by representatives of the food industry in the committee, set up under directions from the Delhi High Court to frame guidelines for junk food in the country. On the face of it there was no one from the junk food industry in the committee. In the early meetings, we only knew that there were members of two associations who were representing the food industry in the committee. But as discussions got under way, it became clear that the big junk food industry was present in the meeting. We learnt that the member representing the National Restaurant Association of India was a top official from Coca-Cola—the world’s most powerful beverage company that is at the centre of the junk food debate globally. The other grouping, All India Food Processors Association, was represented by Swiss food giant Nestle, which has commercial interest in instant noodles and other junk food. The first move by the junk food industry was to block the setting up of the committee itself. But the court rejected this. The industry then changed tactics to argue that the problem was not junk food but lack of physical activity. The Hyderabad-based National Institute of Nutrition has defined junk food as food that contains little or no protein, vitamin or minerals but is rich in salt, fat and energy. There is also robust evidence of the linkage between consumption of this food and non-communicable diseases like diabetes, hypertension and heart diseases. Childhood obesity has become the most serious health concern; even in our part of the world were malnutrition is a big concern. Study after study points to high-calorie intake because of unrestricted access to energy-dense fast food in school canteens and neighbourhoods. While exercise is vital, it is not a substitute for a balanced diet.

General Mills Opens New Frontier in Denying Consumers Right to Sue: Just Use Its Products - Yves Smith --We have just moved beyond an event horizon as far as the corporate version of neo-feudalism is concerned. Remember that one of the salient qualities of feudalism was that the nobility had far more rights than the peasants. By contrast, one of the hoary old notions of jurisprudence is equality before the law. That doesn’t serve our corporate-overlords-in-the-making too well. Subverting jurisprudence over time via inculcating pro-business thinkings through the law and economics movement apparently isn’t good enough for them; they want even higher odds of favorable outcomes. One of them is sneakily getting customers to relinquish their right to sue via getting them to agree to be subject to binding arbitration. This requirement has long been in place as a condition of getting a securities brokerage account. Heretofore, binding arbitration clauses have been limited to cases where a consumer enters into a contract with a service provider, such as a credit card issuer or a cell phone company. But General Mills is trying to prohibit consumers from suing based on penny-ante benefits and even mere contact. From the New York Times:General Mills, the maker of cereals like Cheerios and Chex as well as brands like Bisquick and Betty Crocker, has quietly added language to its website to alert consumers that they give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways… Instead, anyone who has received anything that could be construed as a benefit and who then has a dispute with the company over its products will have to use informal negotiation via email or go through arbitration to seek relief, according to the new terms posted on its site. Yves here. Since when is liking a product a benefit to the consumer??? It’s a benefit to the merchant. That alone gives you an idea of what an overreach this is. Back to the article:

When ‘Liking’ a Brand Online Voids the Right to Sue - Might downloading a 50-cent coupon for Cheerios cost you legal rights?General Mills, the maker of cereals like Cheerios and Chex as well as brands like Bisquick and Betty Crocker, has quietly added language to its website to alert consumers that they give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.Instead, anyone who has received anything that could be construed as a benefit and who then has a dispute with the company over its products will have to use informal negotiation via email or go through arbitration to seek relief, according to the new terms posted on its site. In language added on Tuesday after The New York Times contacted it about the changes, General Mills seemed to go even further, suggesting that buying its products would bind consumers to those terms. “We’ve updated our privacy policy,” the company wrote in a thin, gray bar across the top of its home page. “Please note we also have new legal terms which require all disputes related to the purchase or use of any General Mills product or service to be resolved through binding arbitration.”

Legal Notice. Read Carefully: Your Rights May Be Affected -- In light of General Mills policy of claiming that its binding mandatory arbitration requirement (with class action waiver) applies to anyone who purchases its products, including via third-party vendors, I have decided, to post the following legal notice, applicable to all persons, everywhere: By permitting, allowing, or suffering me to purchase any of your products or services, whether directly from you or indirectly through dealers, vendors, agents, or other third-parties, you agree to irrevocably surrender all rights to compel me to arbitration or to waive my rights to proceed against you as a member of a class action. In order to make this provision effective and allow effective vindication of my rights, you also agree to irrevocably surrender all rights to compel arbitration and to prevent class actions against all other purchasers of your products and services. You also agree to cover all of my costs associated with bringing an action, including attorneys' fees and any damages awarded against me, irrespective of the outcome of the action. Is General Mills notice any more effective than mine? I don't see why it would be. Let's get this long-range battle of the forms on!

USDA Deception on Meat Inspections Continues --Further evidence that the U.S. Department of Agriculture (USDA) is dismantling the meat inspection system as we know it came in an email last night. At 9:22 p.m. on April 16, I received an email from the Freedom of Information Act (FOIA) Office at USDA’s Food Safety and Inspection Service (FSIS) containing a spreadsheet with the number of temporary inspectors the agency has hired and the locations where these temporary inspectors are currently working. The chart was a partial response to a FOIA request we filed on Dec. 23, 2013 to learn where the temporary inspectors were being assigned in response to a job announcement that FSIS had posted, saying: “the Agency is announcing temporary Food Inspector positions to facilitate the transition and to help ensure seamless implementation should the Agency decide to proceed with implementation of the new system.” No one can remember the last time FSIS had advertised for temporary inspector positions, so we became curious as to how the agency was assigning these personnel. Much to our surprise, the spreadsheet reveals that not only are temporary inspectors working in poultry slaughter facilities, but 35 percent of them are working in red meat slaughter facilities. In recent letters to both USDA Secretary Tom Vilsack and Congressman Robert Aderholt, chair of the House Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agency Appropriations, Food & Water Watch pointed out that we were hearing that the temporary inspector hiring program was not meeting its goals and in fact exacerbating an already critical inspector shortage problem across the country.

US orange production hit by disease, juice prices soar - - A citrus disease spread by a tiny insect has devastated Florida's orange crop, which is expected to be the worst in nearly 30 years, and sent juice prices soaring on New York markets. The culprit? The gnat-sized Asian citrus psyllid, which is infecting citrus trees across the Sunshine State with huanglongbing, or citrus greening disease, which causes fruit to taste bitter and fall from trees too soon. "It feels we are losing the fight," said Ellis Hunt, the head of a family-run citrus farm spread over about 5,000 acres (2,000 hectares) in the central Florida town of Lake Wales. The deadly bacteria has slashed his annual production over the past few years from one million boxes of fruit to 750,000. Citrus greening disease has become such a problem this year that the US government has lowered its forecast for the upcoming harvest four times. The latest figures, published earlier this month by the US Department of Agriculture, predict production of 110 million boxes of fruit, or roughly 4.95 million tons. That is 18 percent less than last year, and the lowest since 1985, when citrus groves were hit by a deep freeze. It is also far from the record 244 million boxes collected in 1998.

New Report Reveals Two-Thirds of European Honeybee Pollen Contaminated By Dozens of Pesticides - More than two-thirds of the pollen that honeybees collect from European fields is contaminated by a cocktail of up to 17 different toxic pesticides. These are the shocking findings of a new study released yesterday. In addition to pesticides-related chemicals, the report also identifies substances used in insecticides, acaricides, fungicides and herbicides, produced by agrochemical companies like Bayer, Syngenta and BASF. The study, The Bees' Burden: An analysis of pesticide residues in comb pollen (beebread) and trapped pollen from honey bees, is the largest of its kind, comprising more than 100 samples from 12 European countries. In total 53 different chemicals were detected. The study is a snapshot of the toxicity of Europe’s current agricultural system. It demonstrates the high concentrations and wide range of fungicides found in pollen collected around vineyards in Italy, the widespread use of bee-killing insecticides in pollen from rape fields in Poland, the detection of DDE—a derivative of DDT—a pesticide banned decades ago, and the frequent detection of the insect nerve-poison Thiacloprid, a neonicotinoid, in many samples from Germany. The report confirms the findings of a recent study carried out by the European Food Safety Authority (EFSA). In its study, EFSA acknowledges vast knowledge gaps related to the health of bees and pollinators, including on the effects of chemical "cocktails," and calls on the EU and national governments to fill this gap with further scientific investigation.

High Levels Of Mercury Found In Fish In Remote National Parks - Unhealthily high levels of mercury have been found in fish in national parks in Alaska and the West, proving that even the most remote lakes and streams in the U.S. aren’t immune to mercury pollution. Researchers from the U.S. Geological Survey and National Park Service released a report Thursday that found 5 percent of the freshwater fish sampled in 21 western national parks had levels of mercury that were high enough to trigger toxic responses from the fish themselves, potentially endangering their health and lives. In addition, 35 percent of the fish sampled had enough mercury in them to impact the health of some predatory birds, and 68 percent of fish had mercury levels above the recommended amount for “unlimited consumption” by humans. The researchers said in their report that the levels of mercury in some national parks were alarming because they occurred in small fish — organisms that should have the least amount of mercury in their systems, because the higher fish are on the food chain, the more mercury they’re expected to have. Zion, Capital Reef, Wrangell-St. Elias, and Lake Clark National Parks all contained sites in which most fish exceeded benchmarks for the protection of human and wildlife health,” the report reads. “This finding is particularly concerning in Zion and Capitol Reef National Parks because the fish from these parks were speckled dace, a small, invertebrate-feeding species, yet their Hg [mercury] concentrations were as high or higher than those in the largest, long-lived predatory species, such as lake trout.”

‘Extreme Levels’ of Monsanto’s Roundup Herbicide Found in Soy Plants - A new study led by scientists from the Arctic University of Norway has detected “extreme levels” of Roundup, the agricultural herbicide manufactured by Monsanto, in genetically engineered (GE) soy. The study, coming out in June’s issue of Food Chemistry and available online, looked at 31 different soybean plants on Iowa farms and compared the accumulation of pesticides and herbicides on plants in three categories: GE “Roundup Ready” soy, conventionally produced (not GE) soy, and soy cultivated using organic practices. They found high levels of Roundup on 70 percent of GE soy plants. Crop scientists have genetically engineered soy to survive blasts of Roundup so farmers can spray this chemical near crops to get rid of weeds. But some so-called “super weeds” resistant to Roundup have developed. In turn, some farmers use yet more Roundup to try to kill those hardy weeds. This leads to more Roundup chemicals being found on soybeans and ultimately in the food supply. Who says when Roundup contamination can be considered “extreme?” Monsanto itself. In 1999, the chemical giant defined an “extreme level” of the herbicide as 5.6 milligrams per kilogram of plant weight. Astonishingly, the Norwegian scientists found a whopping nine milligrams of Roundup per kilogram, on average. This is alarming, because Roundup has been found to be hazardous to human health and sometimes kills human cells. The authors conclude: This study demonstrated that Roundup Ready [GE]-soy may have high residue levels of glyphosate […] and also that different agricultural practices may result in a markedly different nutritional composition of soybeans […] Lack of data on pesticide residues in major crop plants is a serious gap of knowledge with potential consequences for human and animal health.

Field-evolved resistance by western corn rootworm to multiple Bacillus thuringiensis toxins in transgenic maize: Crops genetically engineered to produce insecticidal toxins derived from the bacterium Bacillus thuringiensis (Bt) kill pest insects and reduce the use of conventional insecticides. However, the evolution of Bt resistance can diminishes these benefits. The western corn rootworm is a serious pest of maize and is managed with Bt maize. Beginning in 2009, western corn rootworm with resistance to maize producing the Bt toxin Cry3Bb1 imposed severe injury to Cry3Bb1 maize in Iowa. We show that cross-resistance exists between Cry3Bb1 maize and mCry3A maize and is associated with severe injury to Bt maize in farmers’ fields. These results illustrate that Bt crops producing less than a high dose of toxin against target pests may select for resistance rapidly; consequently, current approaches for managing Bt resistance should be reexamined.

Sorrell Braces For Lawsuit If GMO Bill Becomes Law -- There’s a good possibility that Vermont will become the first state in the country to require the labeling of food products made with GMOs. Listen 0:002:23The legislation was passed by the House last year by a wide margin. This year, three Senate committees have given their strong support to the bill. The proposal is scheduled to come up for debate on the Senate floor on Tuesday. If the bill passes and is signed into law, Attorney General Bill Sorrell says it’s likely that some of the country’s major food processors will join together to sue the state of Vermont in an effort to block the bill from taking effect. “I’ll be very surprised if we are not sued if the Legislature goes ahead and enacts a mandatory GMO labeling statute,” said Sorrell. “A lot of people might not realize that this is arguably a free speech issue.” Sorrell says the key to winning the court case is for the state to convince a federal judge that the danger of consuming GMO products outweighs the company’s right to not be required to label these products. He says that’s how the state was able to win a lawsuit several years ago over a bill that required the labeling of products that contain mercury.

Vermont Senate Passes Mandatory GMO Labeling Bill -- Vermont is on track to become the first state to label genetically modified foods. On Tuesday, the Vermont Senate approved the GMO labeling bill, H.112, which will require mandatory labeling of all food products made from genetically modified crops without the dependency of other states. Unlike Maine and Connecticut’s GMO labeling bills, which were passed last year and will only go into effect when other states pass similar laws, Vermont’s H.112 carries no such provisions. The bill doesn’t require other states to enact GMO labeling laws in order to share legal fees if the GMO labeling laws were challenged in court. Instead, Vermont’s Judiciary Committee chairman, Richard Sears, D-VT, said that he felt the state was in “good legal shape” and that the bill is “defensible” so “relying on other states was not in [their] best interest.” Sears also stated that the committee would rather "other states follow the course of Vermont."

China: 20% of our arable land is polluted - --Nearly one-fifth of China's arable land is polluted, China's environmental ministry said. The new report confirms the worst fears of environmentalists and researchers about the effects of decades of rapid industrialization on the country's soil. The release of the report Wednesday shed unexpected light on the scale of China's environmental problem. Environmental authorities had previously declined to disclose national soil pollution data, calling it a "state secret." "The national soil situation overall does not offer cause for optimism," said the report. "In some areas, soil pollution is relatively severe. The condition of arable land is troubling, with the problem of pollution from industry and mining particularly worrisome." The report, based on a seven-year survey covering 6.3 million square kilometers, found that around 16.1% of the country's soil and 19.4% of its arable land was polluted to one degree or another. The vast majority of the pollution came from inorganic sources like heavy metals, it said. China's area is 9.6 million square kilometers. More than 1% of arable land in China was found to be seriously polluted, the report said, without defining what level of contamination that means. State-affiliated researchers had previously estimated that anywhere between 8% and 20% of China's arable land could be contaminated by heavy metals.

Republican Bill Cuts Funding For Climate, Social, Economic Research By $160 Million - The House Republicans’ latest bill to reauthorize science research funding makes an aggressive effort to pick and choose what science to fund, the Boston Globe reports. The GOP’s preferred version of the Frontiers in Innovation, Research, Science, and Technology Act of 2014 (otherwise known as the FIRST Act) would move about $160 million out of the social, behavioral, and economic sciences, cutting those areas by roughly 40 percent. It would also shift money out of the geoscience areas that cover oceanic and climate studies. Democrats have managed to amend the bill to lessen the cuts to 26 percent. But even that would leave spending levels well below their previous path. Specifically, the FIRST Act is a partial reauthorization of the COMPETES Act, which was first passed by Congress in 2007, and then again 2010, and has now expired. The COMPETES Act originally set funding for the National Science Foundation, the National Institute of Standards and Technology, and two offices with the Department of Energy, but the targets were always something of a suggestion — thanks to sequestration and the general push for budget austerity over the last few years, the full funding called for by the COMPETES Act was never authorized by Congress. The FIRST Act would only cover funding for the National Science Foundation (NSF) and the National Institute of Standards and Technology, leaving the Department of Energy agencies to be tackled by separate legislation.

California Drought Spawns Well Drilling Boom - The scarcity of irrigation water in drought-stricken California has created such a demand for well drilling services that Central Valley farmer Bob Smittcamp is taking matters into his own hands. He's buying a drilling rig for $1 million to make certain he has enough water this summer for thousands of acres of fruit and vegetable crops. With California in a third dry year, well drilling is booming across the nation's most productive agricultural region, and some drilling companies are booked for months or a year. In some counties, requests for permits to dig new wells have soared, more than doubling over this time last year. Farmers expect to get only a fraction — if any — of the water they need from vast government-controlled systems of canals and reservoirs interlacing the state. In an effort to make up the difference, they are drilling hundreds of feet deep to tap underground water supplies. Smittcamp estimates that he spends $4,000 an acre tending his peach and grape crops before the harvest. If a well were to run dry mid-season with nobody to call, Smittcamp said he could lose that investment — and perhaps entire orchards or vineyards. The price to dig a well depends on the depth and ground composition, drillers say, costing a farmer anywhere from $50,000 to $500,000 before installing the pumps. Tapping groundwater has other costs. The water that was deposited underground naturally over thousands of years isn't being replaced as rapidly as it's being drawn, causing the ground in the Central Valley to sink in a process called subsidence. In California, there is little if any regulation of groundwater pumping by the state. In most years, Central Valley farmers draw one-third of their water from wells, while the remaining two-thirds comes from California's State Water Project and the federal Central Valley Project. Most farmers expect to receive no water from either this summer, and that ratio is dramatically shifting to underground water supplies, which could eventually run dry.

A Single Pot Plant Uses HOW Much Water?! -- A recent article in the Mendocino County Press Democrat shows just how dire things have gotten in the state's pot-farm-heavy "Emerald Triangle" (Mendocino, Humboldt, and Trinity counties). The piece looks at a forthcoming study from the California Fish and Wildlife Department on three key Emerald Triangle watersheds. Using satellite imagery, the researchers found that pot cultivation had skyrocketed in the areas since 2009, rising between 75 percent and 100 percent. The three watersheds contain an average of 30,000 pot plants each, they found. (Here's a nifty map). And they're thirsty. According to the Press Democrat, "Researchers estimate each plant consumes 6 gallons of water a day. At that rate, the plants were siphoning off 180,000 gallons of water per day in each watershed—all together more than 160 Olympic-sized swimming pools over the average 150-day growing cycle for outdoor plants." Mind you, that's just in the three watersheds the researchers looked at. According to the Press Democrat, there are more than 1 million pot plants in Mendocino alone—not counting legal ones licensed for the medical market.

Do you understand the VALUE of water? --David Zetland at Aguanomics mentions a very local proposition by yours truly as part of a question posed on UN world water day March 22. Purely anecdotal and personal, but I found people willing to chart water use but not to go downstairs and turn off the water as a thought experiment. It was an annoying task for me as well. There are lots of footprint calculators, statistics on use and conservation devices available, but some people still fail to understand (or feel they do not understand) the value of water. I appreciate the value after many stays in many places where there was zero water or water of unhealthy quality. DC suggests this approach to helping people understand the value of water to them:Instead of writing down flushes and glasses of water I “challenged” people to turn off their water at say 10 PM, turn it on in the morning for early ablutions and off again, etc., using water to do things but then turn off again for the next 24 hours. As I said to an NPR reporter on the Charleston, W VA, spill: West Virginia residents have — at least temporarily — flipped to a Third World experience of water. The real cost isn’t just the bottled water and the paper plates. It’s the time spent getting basic needs met. “In the developing world, young girls don’t go to school because they spend their entire lives gathering water,” he says. Bottom Line: The value of water depends on how much you have.

California Drought/Polar Vortex Jet Stream Pattern Linked to Global Warming - From November 2013 through January 2014, a remarkably extreme jet stream pattern set up over North America, bringing the infamous "Polar Vortex" of cold air to the Midwest and Eastern U.S., and a "Ridiculously Resilient Ridge" of high pressure over California, which brought the worst winter drought conditions ever recorded to that state. A new study published this week in Geophysical Research Letters, led by Utah State scientist S.-Y. Simon Wang, found that this jet stream pattern was the most extreme on record, and likely could not have grown so extreme without the influence of human-caused global warming. The study concluded, “there is a traceable anthropogenic warming footprint in the enormous intensity of the anomalous ridge during winter 2013–14, the associated drought and its intensity."

Winter Wheat Hit Hard by Widespread Cold Snap --Most farmers in the Midwest aim to do spring fieldwork during the middle of April, not watch snow fall. But, that’s what many farmers in the Plains, Corn Belt, Great Lake states and even portions of the South saw Sunday, Monday and Tuesday. On the Plains, a late-season cold outbreak continues to threaten jointing winter wheat across the southern half of the region, reports USDA’s in its April 15 agricultural weather highlights. . Freeze warnings have already been issued for Wednesday morning from the Ohio Valley and mid-Atlantic region southward.This late-season cold blast is hitting the nation’s winter wheat crop at just the wrong time, as winter wheat that is jointing is extremely susceptible to frost damage.On April 13, 80% of Oklahoma’s wheat was jointing, along with 31% in Kansas and 6% in Colorado. In Texas, 16% of the wheat is headed. This morning’s temperatures dipped to 32°F or below throughout Oklahoma and western Texas, with numerous readings below 25°F. Overall, 5% of the nation’s winter wheat crop is headed. Winter wheat conditions are pretty dismal, as only 5% of the crop is rated excellent and 30% rated good. The majority, 34%, is rated fair, while 20% came in at poor and 12% at very poor. With drought already sapping soil moisture across the Great Plains, the biggest growing region, a polar vortex in early 2014 draped fields in a deep freeze, killing more plants than normal. According to a Bloomberg report, wheat fields are showing the worst amount of damage in five years.

The eastern United States: A lonely cold pocket on a feverish planet -- NASA’s map of March temperatures around the globe is covered in orange and red, indicative of temperatures well above the norm and symptomatic of a planet running a fever for over 29 years. Yet various shades of blue light up eastern North America shivering under a cold regime which seized control in January. The wave after wave of bitter cold that has walloped the eastern half of the U.S. since the start of 2014 has truly been an anomaly set against the temperature pattern around the rest of the world. Incredibly, the eastern U.S. is the only region of the world that has been colder than normal each of the first three months this calendar year. Here’s January’s map: And here’s February: So the tens of millions of winter weary residents of the eastern U.S. shouldn’t let the frigid weather in their backyard cloud their view of the relatively warm planet. While March produced areas of exceptional cold in the Great Lakes and Northeast – it was the third warmest March on record for the globe, 2 degrees (F) warmer than (the 1950-1981) average according to NASA. Perhaps not coincidentally, the distribution of temperatures around the globe today, April 16, mimics the pattern so common this year:

El Niño Threatens Food Crop Production - The United Nations‘ World Meteorological Organization said its weather model forecasts show a fairly large potential for the occurrence of a weather phenomenon known as El Niño by mid-year, threatening to hinder production of various food crops around the globe. An El Niño phenomenon is associated with above-average water temperatures in the central and eastern Pacific and can in its worst form bring drought to West Africa (the world’s largest cocoa producing region), less rainfall to India during its vital Monsoon season and drier conditions for the cultivations crops such as sugar and cotton in major grower Australia. “Model forecasts indicate a fairly large potential for an El Niño, most likely by the end of the second quarter of 2014,” according to the World Meteorological Organization. “For the June to August period, approximately two-thirds of the models surveyed predict that El Niño thresholds will be reached, while the remaining models predict a continuation of neutral conditions. A few models predict an earlier El Niño onset, such as in May. No model suggests a La Niña in 2014,” said the weather body.

El Niño Could Grow Into a Monster, New Data Show -- The odds are increasing that an El Niño is in the works for 2014—and recent forecasts show it might be a big one. As we learned from Chris Farley, El Niños can boost the odds of extreme weather (droughts, typhoons, heat waves) across much of the planet. But the most important thing about El Niño is that it is predictable, sometimes six months to a year in advance. That’s an incredibly powerful tool, especially if you are one of the billions who live where El Niño tends to hit hardest—Asia and the Americas. If current forecasts stay on track, El Niño might end up being the biggest global weather story of 2014. The most commonly accepted definition of an El Niño is a persistent warming of the so-called “Niño3.4” region of the tropical Pacific Ocean south of Hawaii, lasting for at least five consecutive three-month “seasons.” A recent reversal in the direction of the Pacific trade winds appears to have kicked off a warming trend during the last month or two. That was enough to prompt U.S. government forecasters to issue an El Niño watch last month. Forecasters are increasingly confident in a particularly big El Niño this time around because, deep below the Pacific Ocean’s surface, off-the-charts warm water is lurking:

Why climate change hits the world’s poor harder -- The last Intergovernmental Panel on Climate Change report, in 2007, recognized the fact that those in poverty around the world would suffer a disproportionate share of many climate change impacts, but it didn’t dig much deeper. The new report devotes an entire chapter to research on how climate change will interact with the realities of poverty.Poverty isn’t just about income, though that’s the most common metric. Social inequality (along ethnic, class, or gender lines, for example) can make certain segments of a population similarly vulnerable. But economically, about 1.2 billion people fall below the International Poverty Line of $1.25/day. Another estimate based on factors like access to schooling and clean water puts the number at more like 1.7 billion.There are a great many problems these people might face, like disease, war, scarce employment, social discrimination, and unstable governments. The report describes climate change as a “threat multiplier” capable of adding stress that exacerbates other hardships. Weather trends can force agricultural shifts, like trading crops for livestock in areas where rainfall is decreasing. Some may try to pick up employment on the side or even give up on farming entirely. And weather extremes, of course, have major agricultural impacts. A poor harvest can raise food prices at the same time that it puts agricultural laborers out of work. The more unpredictable next year’s yields are, the less risk a poor farmer can afford to take. That can mean sticking with meager but dependable options rather than taking a chance on something that could significantly boost income.

Will Increased Food Production Devour Tropical Forest Lands? - For the Bantu, farming has changed little in 3,000 years. Small-scale farmers, such as these Bantu women in Gabon, have a relatively light impact on the environment. They plant crops like yams and bananas, while their men hunt or talk village politics. It’s a precarious existence, but the slash-and-burn farmers can eke out a living if their numbers are low enough and game abounds in the nearby forest. Increasingly, though, this picture is changing. The Bantu are multiplying quickly, as are many other peoples across Africa. The United Nations’ mid-range population projections for the continent are staggering, with the number of Africans expected to nearly quadruple from 1.1 billion today to 4.2 billion in 2100. Feeding that populace will be an enormous challenge, requiring, among other things, a gigantic boom in agriculture. The world’s tropical regions will surely be the epicenter of the scramble to increase food production for a global population projected to soar from 7 billion today to 11 billion by the end of the century. The tropics are where crops grow the fastest, where land is often relatively cheap, and where food demand will surge the most. But the rapid agricultural expansion in tropical regions will have profound environmental consequences for rainforests, savannas, and other ecosystems already suffering widespread destruction. The key question facing agricultural experts, scientists, and conservationists is whether this expansion of food production can be accomplished using a reasonably small area of the tropics, or whether unsustainable agricultural practices will gobble up large ecosystems in Africa, South America, and Asia.

Innovation and Chinese Water Rights: China’s most arid regions are facing an increasingly serious water crisis, and local water policies often aggravate the problem. In such climates, growth in the agricultural sector has come with high environmental costs. Despite the parched climate, irrigated agriculture, which is the largest water user, continues to expand. The area under irrigation increased nearly two-fold between 1970 and 2008, from 60,000 ha to 113, 000 ha. During that same time, groundwater tables in Turpan dropped by 1.5 to 2 meters per year causing a series of environmental problems, such as degradation of ecological oases and loss of cultural heritage water supply systems. Overexploitation of groundwater was partly because of the quota-based water rights system in Turpan, based on “use it or lose it” principles. Farmers had incentives to consume as much water as they were entitled to. Even with the use of more efficient irrigation technologies, any water that was “saved” was used to develop more land, not returned to the soil, groundwater, or nearby lakes and streams. More land under irrigation uses more water, and not just the crops. Plants consume water through a process called transpiration, which together with evaporation from water bodies can be measured as evapo-transpiration (ET) – all the water that goes from the land surface into the air. The portion of water lost to ET can be even higher than the amount used to grow the crops. For example, in China’s Hai Basin, 98% of water is consumed by ET processes.

Maine moose population ‘walking dead’ after ticks drain blood due to climate change --Researchers in New England say that warmer weather caused by climate change has allowed ticks to thrive, and devastated the moose population by literally draining them of blood. In a segment on PBS Newshour this week, reporter Hari Sreenivasan traveled to New Hampshire and Maine, where teams were tagging moose with radio transmitters to better understand why the animal population was in steep decline. Film crews were there the day that researches found one dead calf covered in winter ticks. "Literally, this is the walking dead,” University of New Hampshire wildlife ecology professor Peter Pekins explained. “The animal is totally emaciated. And there is no way it can survive.” “They are literally being sucked dry of blood. So, they can’t consume protein to replace the blood loss,” Perkins pointed out. “Their only choice is to catabolize their own tissues. And that is going to be their muscles. The hind legs on a moose are some the most powerful legs in North America. And that animal doesn’t have any. And it’s because it has chewed up its own body to survive as long as it can.” According to scientists, warmer weather has caused an explosion in the tick population.

Why Are 20 Far-Away States Trying To Block The Cleanup Of The Chesapeake Bay? -- For more than 30 years, states in the region have tried to restore the bay, the largest estuary in the U.S. and a body of water which has effectively served as a dumping ground for agricultural pesticides, pharmaceuticals and other chemicals from urban runoff and industrial sources for decades. In the last few years — and after numerous failed attempts — they’ve inched closer to succeeding, thanks to an Environmental Protection Agency-led plan that puts limits on the amount of agricultural nutrients entering the bay, pollution that has spawned numerous oxygen-free, marine life-killing “dead zones” in the bay and its tributaries. The plan was created at the request of the six Chesapeake Bay states and the District of Columbia, and according to Claudia Friedetzky of the Maryland Sierra Club, is “the best chance that we have ever had to clean up the Chesapeake Bay.” But to a group of 21 Attorneys General from states almost exclusively outside the Chesapeake Bay region, the plan means only one thing: EPA overreach.Earlier this year, a group of 21 Attorneys General from states as far away from the Chesapeake Bay as Alaska and Wyoming submitted an amicus brief that aims to strike down the EPA’s Chesapeake cleanup plan. The AGs argue that the cleanup plan raises serious concerns about states’ rights, and they worry that if the plan is left to stand, the EPA could enact similar pollution limits on watersheds such as the Mississippi.

Asian air pollution strengthens Pacific storms: Air pollution in China and other Asian countries is having far-reaching impacts on weather patterns across the Northern Hemisphere, a study suggests. Researchers have found that pollutants are strengthening storms above the Pacific Ocean, which feeds into weather systems in other parts of the world. The effect was most pronounced during the winter. The study is published in the Proceedings of the National Academy of Sciences (PNAS). Lead author Yuan Wang, from the Jet Propulsion Laboratory at the California Institute of Technology, said: "The effects are quite dramatic. The pollution results in thicker and taller clouds and heavier precipitation." Toxic atmosphere Continue reading the main story Parts of Asia have some of the highest levels of air pollution in the world. In China's capital, Beijing, pollutants frequently reach hazardous levels, while emissions in the Indian capital, Delhi, also regularly soar above those recommended by the World Health Organization. This has dire consequences for the health of those living in these regions, but there is growing evidence that there are other impacts further afield.

Ocean Acidification Impairs Sense of Smell in Fish - Acidic ocean water blunts the sense of smell in fish, making them bolder—perhaps recklessly so, according to a new study offering a glimpse of the oceans of the future. The findings suggest that, if greenhouse gas emissions continue unabated, fish could suffer debilitating behavioral effects. "If reef fish behavior does not adapt to rising [carbon dioxide] CO2 levels over coming generations, there could be serious consequences for the structure and function of future reef communities," the authors wrote in the study published in Nature Climate Change. The researchers, however, were surprised to find fish populations near the carbon seeps about as diverse and abundant as the fish from normal reefs. The researchers studied young fish living near reefs in Papua New Guinea where CO2 venting from volcanic seeps make the water more acidic. Compared to fish from reefs without seeps, the fish in acidic waters were more attracted to their predator's smell, didn't distinguish between different habitats' odors and were bolder, emerging from shelter at least six times faster after a disturbance. Seawater pH near the seeps in Papua New Guinea is about 7.8—the same pH that ocean surface waters will reach by 2100, according to climate models assessed by the Intergovernmental Panel on Climate Change.

Greenland’s Ice Cap Is Becoming Unstable - Greenland—the largest terrestrial mass of ice in the northern hemisphere—may be melting a little faster than anyone had guessed. A region of the Greenland ice sheet that had been thought to be stable is undergoing what glaciologists call “dynamic thinning”. That is because the meltwater from the ice sheet is getting into the sea, according to a study in Nature Climate Change. In short, Greenland’s contribution to sea level rise has been under-estimated, and oceanographers may need to think again about their projections. Previous studies had identified melting of glaciers in the island’s south-east and north-west, but the assumption had been that the ice sheet to the north-east was stable.It was stable, at least until about 2003. Then higher air temperatures set up the process of so-called dynamic thinning. Ice sheets melt every Arctic summer, under the impact of extended sunshine, but the slush on the glaciers tends to freeze again with the return of the cold and the dark, and since under historic conditions glaciers move at the proverbial glacial pace, the loss of ice is normally very slow. But global warming, triggered by rising levels of greenhouse gases in the atmosphere, has changed all that. Greenland’s southerly glaciers have been in retreat and one of them, Jakobshavn Isbrae, is now flowing four times faster than it did in 1997. Now the Danish-led team has examined changes linked to the 600 kilometre-long Zachariae ice stream in the north-east. This has retreated by about 20 kms in the last decade, whereas Jakobshavn has retreated about 35 kms in 150 years. The Zachariae stream drains around one-sixth of the Greenland ice sheet, and because warmer summers have meant significantly less sea ice in recent years, icebergs have more easily broken off and floated away, which means that the ice stream can move faster. The researchers used satellite studies to measure ice loss.

21st Century's First Decade Saw Doubling of Greenhouse Gas Emissions: IPCC -- Greenhouse gas emissions grew in the first decade of the 21st century at a rate almost double that of the previous 30 years, despite the 2008 economic downturn, a leaked portion of the UN's International Panel on Climate Change's latest research reveals. "Global GHG [greenhouse gas] emissions have risen more rapidly between 2000 and 2010," says the leaked portion of the the draft report obtained by the Guardian, adding, "Current GHG emissions trends are at the high end of projected levels for the last decade." According to the report, the drastic upswing in emissions is largely due to an increased reliance on coal-fired power plants. As Suzanne Goldenberg at the Guardianreports, there are over 1,000 new plants under construction around the world, with most arising in China and India. As the IPCC research highlights, those plants are largely supplying power for factories making goods for the U.S. and Europe. Countries such as Germany, Britain and France have also significantly increased coal burning. The latest draft says emissions grew 2.2% per year between 2000 and 2010, compared to 1.3% per year over the previous three decades. And between 2010 and 2011 emissions grew 3%. This noted increase in emissions coincides with a recent report released by the UN's World Meteorological Organization (WMO), which said 13 of the 14 warmest years on record occurred in the 21st century.

UN: rate of emissions growth nearly doubled in first decade of 21st century -- Greenhouse gas emissions grew nearly twice as fast over the past decade as in the previous 30 years, bringing the world closer to warming that will bring dramatic and dangerous changes to the climate, according to a leaked draft of a United Nations' report. The report from the Intergovernmental Panel on Climate Change (IPCC) said the growth rate in emissions over the from 2000-10 was higher than expected – even after taking into account the economic slowdown. "Global GHG [greenhouse gas] emissions have risen more rapidly between 2000 and 2010," said the draft obtained by the Guardian. "Current GHG emissions trends are at the high end of projected levels for the last decade." The draft went on to warn that delaying emissions cuts beyond 2030 would make it harder to avoid the severe consequences of climate change. Leading scientists and government officials are in Berlin this week to approve the exact wording of the report before it is formally released on 13 July. The IPCC report is the third part of a trilogy intended to serve as the definitive account of climate change.

Car, Truck and Airplane Pollution Set to Drive Climate Change - On the current trajectory, greenhouse gas emissions from cars, trains, ships and airplanes may become one of the greatest drivers of human-induced climate change, according to a draft of the forthcoming U.N. fifth assessment report on mitigation of climate change. Authors project with high confidence that continued growth in emissions from global passenger and freight activity could "outweigh future mitigation measures," says a preliminary version of the Intergovernmental Panel on Climate Change (IPCC) study obtained by ClimateWire. Lacking improvements in fuel efficiency combined with a comprehensive mitigation policy, the report finds that transport emissions could double by 2050 from 6.7 gigatons of emitted carbon dioxide in 2010, which represents 22 percent of the world's total. Demand for personal vehicles and consumer goods in fast-growing economies like China, India and Brazil is fueling the use of motorized transport across all modes. The transportation sector's almost complete reliance on energy-dense, high-carbon fuels, like gasoline and diesel makes reducing emissions an even greater challenge. "[Transportation] could actually become one of the biggest sectors of emissions ... because you can mitigate the other sectors more easily,"

'Modest hope' to slow warming, but no 'free lunch,' U.N. warns - -- Keeping global warming down to a level people can live with means cutting carbon emissions to "near zero" by the end of the century, even in an increasingly industrialized world, the top U.N. experts on the issue reported Sunday. That may be doable, but it will take "substantial investments" in everything from planting more trees to replacing fossil fuels with low-carbon power sources like solar, wind and nuclear energy, the Intergovernmental Panel on Climate Change announced in its latest report. "What this report clearly shows is that the challenges to resolve the global common problem are huge," said Ottmar Edenhofer, a German economist and one of the lead authors of Sunday's document. "But also this report shows that there are some steps to resolve this issue. I would say in that sense the report also outlines the challenges, but it provides hope -- modest hope." Jennifer Morgan, the director of the Climate and Energy Program at the World Resources Institute, agreed. "The report shows that the scale of change require to tackle climate change is massive, but the ability to solve it is possible," she said Sunday. "We need to do it quickly, before it will get so expensive to respond that we may hit the points of no return."

IPCC: Cost of Avoiding Dangerous Climate Change Super-Affordable if We Act Now -- Climate change is a huge threat to civilization if we do nothing more to reduce it, but the costs are very affordable if we start now, said the Nobel-prize winning Intergovernmental Panel on Climate Change (IPCC) today, in the third installment of their once-every-seven-years report on the climate. Today's report on mitigation--how we can slow down climate change--was the most hopeful of the reports, since it found that the cost of keeping global warming under the "dangerous" level of 2°C will only reduce "consumption growth" of the global economy by 0.06% per year if we start immediately and act strongly. Since consumption growth is expected to increase between 1.6% and 3% per year in the coming decades, we’re talking about annual growth that is, for example, 2% rather than 2.06%. This is a small price to pay to greatly decrease the risks of increased hunger, thirst, disease, refugees, and war outlined in the IPCC's frightening Working Group 2 report on risks and adaptation released two weeks ago.If we are going to avoid a dangerous 2°C (3.6°F) warming, we must make large and rapid cuts in greenhouse gas emissions. At the 2010 climate talks in Cancun, the governments of the world agreed that global warming should be kept under 2°C (3.6°F) above pre-industrial levels in order to avoid a "dangerous" threshold of climate change. The new IPCC report says that in order to do this, the share of zero and low carbon energy sources like solar, wind, nuclear, and unproven technologies like fossil fuel with Carbon Capture and Storage (CCS) must at least triple by 2050, and greenhouse gas emissions will have to fall 40 - 70%, compared to 2010 levels. By 2100, emissions of CO2 need to be near zero. This would require about $30 billion per year less to be spent on fossil fuels from 2010 - 2029, $147 billion per year more to be spent on zero and low carbon energy sources, and several hundred billion per year more per year to be spent on energy efficiency.

Rising Sun - Paul Krugman - Joe Romm draws our attention to the third slice of the latest IPCC report on climate change, on the costs of mitigation; the panel finds that these costs aren’t that big — a few percent of GDP even by the end of the century, which means only a trivial hit to the growth rate. ...In fact, you should be optimistic...: the technological prospects for a low-emission economy have gotten dramatically better.It’s kind of odd how little attention the media give to the solar revolution, but this is really huge stuff:In fact, it’s possible that solar will displace coal even without special incentives. But we can’t count on that. What we do know is that it’s no longer remotely true that we need to keep burning coal to satisfy electricity demand. The way is open to a drastic reduction in emissions, at not very high cost. And that should make us optimistic about the future, right? I mean, all that stands in our way is prejudice, ignorance, and vested interests. Oh, wait.

Oklahoma Will Charge Customers Who Install Their Own Solar Panels - Oklahoma residents who produce their own energy through solar panels or small wind turbines on their property will now be charged an additional fee, the result of a new bill passed by the state legislature and expected to be signed into law by Gov. Mary Fallin (R). On Monday, S.B. 1456 passed the state House 83-5 after no debate. The measure creates a new class of customers: those who install distributed power generation systems like solar panels or small wind turbines on their property and sell the excess energy back to the grid. While those with systems already installed won’t be affected, the new class of customers will now be charged a monthly fee — a shift that happened quickly and caught many in the state off guard.

Growth for growth’s sake will kill us all - One economic fact is held to be self-evident: that the future well-being of the United States requires economic growth — preferably, as much of it as we can muster. Despite wildly divergent policy recommendations, this basic assumption is made clear and explicit by everyone from the fiscally conservative Club for Growth to the left-leaning Center for American Progress. In the boardroom of the Federal Reserve, at the negotiating table for the Trans-Pacific Partnership and on the shale fields of North Dakota, our national economic policy is built on the unshakable conviction that the only way to grow the middle class is to grow the economy — by any means necessary. Aside from the fact that the top 1 percent has taken most of the gains of growth, leaving the rest of society in virtual stalemate for three decades, there is a profound problem with this solution. Indeed, it’s time to face an ecological truth that makes the traditional assumption increasingly untenable, as unpopular and difficult as this conclusion might be: Growth isn’t always possible. Nor is it necessarily desirable. Even if this particular ideological logjam were to suddenly and unexpectedly clear, the case for unrestricted growth is not convincing for other reasons — in particular, environmental ones, as the new report from the U.N.’s Intergovernmental Panel on Climate Change makes clear. The heat waves, droughts, floods and other harbingers of a changing climate catalogued in the report continue to multiply, and governments are now forced to get serious about adaptations to the world our carbon-fueled economy has produced. Yet so far a serious conversation about reducing emissions remains politically impossible. Despite the head-in-the-sand antics of “skeptics,” climate change is real, and economic growth, even at today’s historically depressed levels, is a major factor.

A Nuclear Power Plant Goes On The Auction Block - In late March, the San Onofre Nuclear Generating Station (SONGS) in southern California hosted a three-day nuclear auction, the first step in a decades-long decommissioning process for the recently shuttered generating station that will cost over $3 billion dollars, account for more than 1,500 jobs lost, and require the replacement of 2.2 gigawatts of power. Forced to close due to the failure of expensive equipment upgrades, the closure of the plant is illustrative of the turning point at which many nuclear power plants in the U.S. find themselves as they confront aging infrastructure, expensive repairs and upgrades, environmental risks, and price competition from natural gas, wind and solar power. Available to the highest bidder at the auction was everything from overflowing toolboxes to heavy machinery to control panels. Community members joined seasoned dealers in scouting out turbine heat exchangers, eye-washing stands, and some 2,700 other items for personal use, professional use or resale on the 130-acre site about 50 miles north of San Diego. SONGS was a powerful community presence long before its guts were sold off and dispersed throughout the region, and it will continue to influence local decision-making for many years to come. The first reactor went into operation in 1968, the decommissioning process will go on for at least two decades, and the radioactive waste will be stored onsite for the foreseeable future.

Post-Fukushima Japan Chooses Coal Over Renewable Energy - Prime Minister Shinzo Abe is pushing Japan’s coal industry to expand sales at home and abroad, undermining hopes among environmentalists that he’d use the Fukushima nuclear accident to switch the nation to renewables. A new energy plan approved by Japan’s cabinet on April 11 designates coal an important long-term electricity source while falling short of setting specific targets for cleaner energy from wind, solar and geothermal. The policy also gives nuclear power the same prominence as coal in Japan’s energy strategy. In many ways, utilities are already ahead of policy makers. With nuclear reactors idled for safety checks, Japan’s 10 power companies consumed 5.66 million metric tons of coal in January, a record for the month and 12 percent more than a year ago, according to industry figures. “You cannot exclude coal when you think about the best energy mix for Japan to keep energy costs stable,” said Naoya Domoto, president of energy and plant operations at IHI Corp., a developer of a technology known as A-USC that burns coal to produce a higher temperature steam. “One way to do that is to use coal efficiently.” Japan’s appetite for coal mirrors trends in Europe and the U.S., where the push for cheaper electricity is undermining rules limiting fossil fuel emissions and supporting cleaner energy. In the U.S., a frigid winter boosted natural gas prices, providing catalyst for utilities to extend the lives of dirtier coal plants. Germany, Spain and Britain are slashing subsidies for renewables to rein in the cost of electricity.

Toxics Across America: Report Details 120 Hazardous, Unregulated Chemicals in the U.S. --Recent spills in West Virginia and North Carolina cast a spotlight on toxic hazards in our midst. But as bad as they are, these acute incidents pale in scope compared to the chronic flow of hazardous chemicals coursing through our lives each day with little notice and minimal regulation. A new report by Environmental Defense Fund (EDF), Toxics Across America, tallies billions of pounds of chemicals in the American marketplace that are known or strongly suspected to cause increasingly common disorders, including certain cancers, developmental disabilities and infertility. While it’s no secret that modern society consumes huge amounts of chemicals, many of them dangerous, it is surprisingly difficult to get a handle on the actual numbers. And under current law it’s harder still to find out where and how these substances are used, though we know enough to establish that a sizeable share of them end up in one form or another in the places where we live and work.The new report looks at 120 chemicals that have been identified by multiple federal, state and international officials as known or suspected health hazards. Using the latest—albeit limited—data collected by the U.S. Environmental Protection Agency (EPA), the report identifies which of these chemicals are in commerce in the U.S.; in what amounts they are being made; which companies are producing or importing them; where they are being produced or imported; and how they are being used. An interactive online map accompanying the report lets the user access the report’s data and search by chemical, by company, by state and by site location.

Governor’s Coal Ash Action Plan Favors Duke Energy, Threatens Drinking Water --Late last night, North Carolina Governor Pat McCrory released his so-called “Comprehensive Coal Ash Action Plan” claiming the legislation will “close loopholes in state law to strengthen the state’s ability to regulate coal ash ponds.” But comprehensive review of the proposed plan conducted by environmental experts and public interest attorneys reveals that it categorically fails to live up to the hype and meaningfully protect North Carolinians from poisoned drinking water as well as another tragic and toxic coal ash spill. Despite repeated requests by news media and environmental groups the Governor refused to release copies of the plan until 6:38 p.m.—after deadlines for most news organizations. “The bill is riddled with loopholes that benefit Duke to the detriment of the health and safety of North Carolinians and their environment,” said Earthjustice attorney Lisa Evans. The Comprehensive Coal Ash Action Plan would allow Duke Energy to continue poisoning North Carolina, South Carolina and Virginia drinking water sources with a witch’s brew of toxic heavy metals including arsenic, cadmium, chromium, lead, mercury and selenium because it allows Duke Energy to cover up coal ash ponds with dirt and leave them unattended and unmonitored on the banks of nearby rivers and lakes. The bill is a tremendous waste of time when people and the environment are threatened throughout the state. North Carolina citizens desperately need realsolutions—not a papering over of the problem.

Oil Limits and Climate Change – How They Fit Together - We hear a lot about climate change, especially now that the Intergovernmental Panel on Climate Change (IPCC) has recently published another report. At the same time, oil is reaching limits, and this has an effect as well. How do the two issues fit together? In simplest terms, what the situation means to me is that the “low scenario,” which the IPCC calls “RCP2.6,” is closest to what we can expect in terms of man-made carbon emissions. Thus, the most reasonable scenario, based on their modeling, would seem to be the purple bar that continues to rise for the next twenty years or so and then is close to horizontal.I come to this conclusion by looking at the tables of anthropogenic carbon emission shown in Annex II of the report. According to IPCC data, the four modeled scenarios have emissions indicated in Figure 2. The likely effect of oil limits–one way or the other–is to bring down the economy, and because of this bring an end to pretty much all carbon emissions (not just oil) very quickly. There are several ways this could happen:

Low oil prices – this is the current problem. Oil companies are cutting back on new expenditures because they cannot make money on a cash flow basis on shale plays and on other new oil drilling.

Huge credit problems, such as happened in 2008, only worse. Oil drilling would stop within a few years, because oil prices would drop too low, and stay too low, without lots of credit to prop up prices of commodities of all types.

Rapidly rising interest rates, as QE reaches its limits.

End of globalization, as countries form new alliances, such as Russia-China-Iran. The US is making false claims that we can get along without some parts of the world, because we have so much natural gas and oil. This is nonsense.

Fracking Gas Worse Than Coal at Global Warming - Because methane is a more potent greenhouse gas than CO2 And the release of methane during drilling, during fracking, during venting, via methane migration of aging well bores, during transportation via old leaky gas lines - all cause more global warming than coal ever could. Imagine that. Unexpected loose gas from fracking - A survey of hydraulic fracturing sites in Pennsylvania revealed drilling operations releasing plumes of methane 100 to 1,000 times the rate the EPA expects from that stage of drilling, according to a study published Monday in the Proceedings of the National Academy of Sciences. (WaPo infographic)

Up To 1,000 Times More Methane Released At Gas Wells Than EPA Estimates, Study Finds - An analysis of a number of hydraulic fracturing sites in southwestern Pennsylvania has found that methane was being released into the atmosphere at 100 to 1,000 times the rate that the Environmental Protection Agency estimated. The study, published Monday in the Proceedings of the National Academy of Sciences, found that drilling operations at seven well pads emitted 34 grams of methane per second, on average, much higher than the EPA-estimated 0.04 grams to 0.30 grams of methane per second. The researchers, who were attempting to understand whether airborne measurements of methane aligned with estimates taken at ground level — the method commonly used by the EPA and state regulators — flew a plane over the region of the Marcellus Shale for two days in June 2012. “The researchers determined that the wells leaking the most methane were in the drilling phase, a period that has not been known for high emissions,” reported the Los Angeles Times. “Experts had thought that methane was more likely to be released during subsequent phases of production, including hydraulic fracturing, well completion or transport through pipelines.” Methane (CH4), the chief component of natural gas, makes up about nine percent of the country’s greenhouse gas emissions. It is a super-potent greenhouse gas — especially during the first 20 years after it enters the atmosphere when it traps around 86 times as much heat as CO2. So even small leaks in the natural gas production and delivery system can have a large climate impact — enough to gut the entire benefit of switching from coal-fired power to gas.

EPA Focuses on Fracking, Leaks and More to Further Obama’s Methane Plan -- The U.S. Environmental Protection Agency (EPA) on Tuesday released five technical papers as the first step to enacting President Barack Obama's recent plan to reduce methane emissions. The five white papers address different emissions sources and mitigation techniques regarding methane and volatile organic compounds. The sources of focus are fracking, leaks, compressors, liquid removal and pneumatic devices. "[The] EPA will use the papers, along with the input we receive from the peer reviewers and the public, to determine how to best pursue additional reductions from these sources," according to a white paper summary. The summary also includes brief definitions of each of those sources, while the actual papers gather years of EPA research on each of the sources. For instance, the fracking paper states that there were an estimated 504,000 gas-production wells in the U.S. and about 536,000 that produced oil. Meanwhile, the compressor paper details the number of compressors reported from 2012 under the Greenhouse Gas Reporting Program, which was required by Congress about six years ago, and the startling emissions figures associated with those compressors.

Labor Shortage Threatens to Bust the Shale Boom - How high is demand for welders to work in the shale boom on the U.S. Gulf Coast? So high that “you can take every citizen in the region of Lake Charles between the ages of 5 and 85 and teach them all how to weld and you’re not going to have enough welders,” said Peter Huntsman, chief executive officer of chemical maker Huntsman Corp. So high that San Jacinto College in Pasadena, Texas, offers a four-hour welding class in the middle of the night. So high that local employers say they’re worried there won’t be adequate supply of workers of all kinds. Just for construction, Gulf Coast oil, gas and chemical companies will have to find 36,000 new qualified workers by 2016, according to Industrial Info Resources Inc. in Sugar Land, Texas. Regional estimates call for even more new hires once those projects are built. The processing and refining industries need so many workers to build new facilities in Texas and Louisiana because of the unprecedented rise over the last three years in U.S. oil and gas production, much of it due to shale. Labor shortages, causing delays in construction, threaten to slow the boom and push back the date when the country can meet its own energy needs, estimated by BP Plc to be in 2035. Worker scarcities are already evident in the unemployment rates of Texas (5.7 percent) and Louisiana (4.5 percent), both below the national average of 6.7 percent, according to the Bureau of Labor Statistics. The lowest jobless rate of any area in the U.S. in February was 2.8 percent in Houma-Bayou Cane-Thibodaux, Louisiana, because of offshore-oil exploration in the Gulf of Mexico.

There's Been a Huge Burst of Earthquakes in a Part of Ohio That Has Never Had Them - Last month, the state of Ohio shut down Hilcorp Energy's major fracking operation near the Pennsylvania border after five earthquakes occurred over the course of two days, including one that reached magnitude 3. No earthquakes had ever been reported in the area, located near the Carbon Limestone Landfill in Poland, Ohio. Now, scientists say they have evidence that links the quakes directly to Hilcorp Energy's fracking operations. The Ohio Department of Natural Resources claimed in a statement that their scientists "believe the sand and water injected into the well during the hydraulic fracturing process may have increased pressure on an unknown microfault in the area," and have taken immediate action to shut down seven wells. The department has issued new requirements that wells drilling within three miles of a known underground geologic fault line or any location with a measured 2.0 magnitude or greater seismic event since 1999 be equipped with seismic monitors. Under the new rules, any seismic event with a magnitude of greater than one must be followed by the operator taking the well offline. An investigation must be initiated, and if a probable link to fracking is found, all operations at the site must be permanently halted.

Ohio Earthquakes Linked to Fracking, Companies Required to Test for Seismic Activity -The Ohio Department of Natural Resources (ODNR) announced on Friday that recent earthquakes in northeastern Ohio were likely caused by hydraulic fracturing—or fracking. A series of earthquakes up to magnitude 3.0 struck on March 1o-11 in Mahoning County near the Ohio-Pennsylvania border. A nearby Utica oil well was being fracked at the time of the quakes, leading ODNR shut down the operation until a possible link could be investigated further. This is now the fourth documented case of induced seismicity linked to fracking, and the latest in a series of earthquakes in Ohio caused by oil and gas production activities. The earlier quakes resulted from disposal of waste water into underground injection wells. Scientists have long known that injecting fluids underground can cause earthquakes. Despite this fact, neither state nor federal regulations require operators of fracking wells or disposal wells to evaluate the risk of induced earthquakes when deciding where to site wells or how to operate them. Ohio will now be the first state to require companies to monitor for seismic activity during fracking and shut down operations if earthquakes occur. Earthquakes caused by oil and gas production activities have been happening across the U.S., including in places where natural earthquakes are uncommon. It’s time for regulators everywhere to put public health and safety first, and create rules to assess and mitigate the risk of induced earthquakes.

Ohio cracks down on fracking over earthquake worries - Ohio is set to slap the oil and gas industry with more regulations, due to an alleged link between hydraulic fracturing near fault lines and increased earthquakes. The Ohio Department of Natural Resources (ODNR) said on Friday it would require drilling companies to install seismic monitors if they want to frack within three miles of a known fault line, or where an earthquake has already occurred. If the monitors detect a seismic event above a 1.0 magnitude, drilling operations must be stopped. But the drilling pause doesn’t stop there. If the state determines there is a “probable connection” between fracking and the quake, oil and gas companies will not be able to complete their well site. “The seismic testing will be done in real-time,” said ODNR spokesman Mark Bruce. “If we see anything above one, the (policy) will require them to stop. We can then look at the data. If the seismic monitors show that it is down at the bedrock (below the fracturing), then it has nothing to do with the well and they can continue.” Across the country, environmentalists have been trying to link fracking with earthquakes. Last month, Ohio’s Poland Township was hit by a 3.0 earthquake that originated directly under fracked wells. It was followed by four smaller quakes that prompted the state to halt oil and gas operations in the area. The Poland Township quake, however, was relatively small. Further, seismic events linked to fracking sites are extremely rare. The Poland Township incident is the first to occur out of the 836 wells in the Utica and Marcellus shales in the state of Ohio. A report from Durham University found that “after hundreds of thousands of fracturing operations, only three examples of felt seismicity have been documented.”

'Fracking' debate gets a little more complicated -- A move by Ohio regulators last week to tighten permits around hydraulic fracturing—so-called fracking—could amplify the debate between energy industry interests and environmentalists over the gas drilling technique. In a carefully worded decision Friday, Ohio's Department of Natural Resources for the first time drew a tentative link between gas drilling and an uptick in local quakes. Studies previously had linked only the disposal of fracking wastewater to earthquakes, not the act of fracking itself. New guidelines in the state will allow regulators to halt fracking if seismic monitors detect a quake in excess of 1.0 on the Richter scale, in order to investigate whether drilling is "the probable connection" to a potential quake. "While we can never be 100 percent sure that drilling activities are connected to a seismic event, caution dictates that we take these new steps to protect human health, safety and the environment," said the Ohio agency's director, James Zehringer, in a statement. The new policy "will provide more information" about the causes behind tremors in the region, he added. For the moment, the jury is still out on how tight the link is between quakes and soaring shale production, and few think it will derail a U.S. drive toward energy independence that's built largely around fracking. However, the surge in seismic disturbances has left both sides of the fracking debate more polarized than ever.

Do Fracking Companies Face Regulatory Risks? -- We recently learned that Ohio geologists are formally announcing their belief that there is a causal link between earthquakes and fracking. While those who follow the industry have already been aware of this suspicion, there have been no formal proclamations that have potentially threatened the industry until now. If state geologists are asserting that a link exists, it matters less whether this is actually the case and more that this could lead Ohio and potentially other states to adopt restrictive legislation that adversely impacts the companies that are involved in fracking. If we juxtapose this with the environmental concern that fracking causes earthquakes, we see how regulators face a dilemma. Do they restrict fracking and effectively destroy jobs and wealth that is so rapidly being created, or do they risk heightening the probability that the country will experience a devastating earthquake or series of earthquakes caused by fracking?The fact that Ohio geologists are formally addressing the environmental concern means that we are more likely to see higher regulations and restrictions on fracking.This is potentially bad news for investors in “fracking stocks,” such as those mentioned above. While no action has been taken to restrict fracking, even the possibility can lead investors to sell of their shares of these companies. For investors that are invested in fracking companies, or for those investors who are thinking about investing in these companies, here are a few tips.

Pennsylvania’s Top Papers Ignore Controversial ‘Forced Pooling’ Fracking Law - Hilcorp Energy, a Texas-based oil and gas company, is pushing legal action in Pennsylvania to be able to drill underneath the property of landowners that have refused to sign a lease if enough of their neighbors have already signed, a practice known as "forced pooling." The "unused and outdated" law, which is "pitting neighbor against neighbor" as reported by the Associated Press, would "shred private property rights" according to the Pittsburgh Tribune Review, the only of the three highest circulating papers in Pennsylvania to cover the story. The other two, The Philadelphia Inquirer and the Pittsburgh Post-Gazette, have completely overlooked the issue which has received national attention. The "forced pooling" law would force landowners to allow the use of fracking to extract natural gas reserves underneath their property without their consent, creating concerns about the impact on property values and the threat of water pollution. A leaked document from the U.S. Environmental Protection Agency (EPA) stated that natural gas extraction has caused methane to leak into domestic water wells, causing "significant damage" to the drinking water supply of the town. Pennsylvania isn't the only state dealing with the "forced pooling" issue. Energy companies have been exploiting similar laws in many states including in Illinois and Ohio to the outrage of unsuspecting landowners. In Ohio, citizens are "furious" about the ruling that one citizen fears will "make him legally responsible for spills and other damage" according to the Associated Press. Some residents have "resigned to losing future income," while dozens of others are pushing forward lawsuits in an attempt to stop the forcible drilling.

Gas Industry Supports Fewer Jobs Than Pennsylvania Governor Claims, Report Says - Incumbent Pennsylvania Governor Tom Corbett is campaigning for re-election using overstated numbers on how many jobs the natural gas industry actually supports in his state, according to a Monday report in National Journal. Journal reporter Clare Foran took a close look at job numbers from Pennsylvania’s state labor agency and found that approximately 30,000 people were directly employed by the booming natural gas industry, largely driven by the controversial practice of hydraulic fracturing, or fracking. That number is drastically smaller than the number Governor Corbett touted in a recent ad, which said the industry supports more than 200,000 jobs. The figure Corbett is using includes jobs indirectly supported by the natural gas industry, such as freight trucking and construction. Foran took issue with that figure, quoting a state Department of Labor researcher who admitted that the number “amounts to little more than a guess.” “We have absolutely no idea how many jobs in that second category are due to natural-gas production,” Tim McElhinny, an economic research manager at the state Department of Labor and Industry’s center for workforce information and analysis, reportedly said.

Royally Fracking Ripped Off -- Around the country, landowners are suing Chesapeake and other drillers for massive deductions from royalty checks. Donald Feusner used to be a dairy farmer. His 370 acres of land in northeast Pennsylvania border New York state in a gloriously lush area. In 2011, when his farm was no longer profitable, he sold off his herd and retired to what he thought would be the life of a gentleman farmer, living off the proceeds of the gas wells Chesapeake Energy had drilled on his land. And in December 2012, when the wells came in, it looked as though he’d made a safe bet: Royalty income from the first month’s production alone totaled more than $8,500. But five months later, with the wells still producing the same amount of gas, his royalty check suddenly shrank by more than 80 percent, to just under $1,700, eaten away by what Chesapeake called “post-production costs.” In the following months, his checks dwindled even further, to almost nothing. “In October 2013, I got a check that said my royalty was $6,000,” said Feusner, “but after one set of deductions it was reduced to $115; after another adjustment it dropped further. They wound up taking 99.3 percent of my royalty. I got $46.” Harold Moyer, an accountant with the Pennsylvania Farm Bureau who represents Feusner and 150 other royalty owners in northern Pennsylvania, said that Feusner’s lease agreement was bad from top to bottom: It not only let Chesapeake put a large well pad on the property for no extra money, but it allowed the company to deduct post-production costs. Chesapeake declined to comment on Feusner’s royalties or any other aspect of this story.

Import Frack Waste Into Connecticut ? --You’ve got to be fracking kidding. No fracking way. So says the newspapers and so say I. Connecticut needs not one drop of imported frack filth from Fracksylvania. Editorial, The Hartford Couran: There are few governmental responsibilities as profound as protecting the air and water that sustain life. When there is a question about air or water quality, government ought to err on the side of caution. That is why, until the system is safe beyond question, the state should ban the storage and disposal of fracking waste within Connecticut’s borders. Fracking, or hydraulic fracturing, is the injection of water, chemicals and sand into underground rock formations to facilitate the release of gas and oil. But it comes with a serious challenge. Each well requires vast amounts of water — water that is laced with toxic chemicals and is further contaminated by radioactive materials, metals and saline substances in the ground. This fracking waste must somehow be dealt with. The ways to deal with it are all problematic. Some of the wastewater can be recycled for more fracking. Waste can be sent to deep injection wells for indefinite storage. Or it can be transported to waste treatment facilities for treatment and discharge into waterways. Some states reuse the water as winter road de-icing treatments.Though there have been studies, the toxic potential of the wastewater is not fully understood. Typically, drillers don’t have to reveal what chemicals are in the fracking fluid or waste. If the components are unknown, there can be little confidence that conventional water treatment processes can clean it.

Report finds fracking drains water from drought-stricken states -- As states from Arkansas to California deal with economically crippling, record-breaking droughts, a new report has found that hydraulic fracturing — a process of drilling for oil and natural gas also known as fracking — could further deplete scarce water resources. The report, issued by sustainable investing consultancy Ceres on Wednesday, found that since 2011 nearly half of all fracking wells were located in areas with high levels of “water stress.” Ceres defines water stress as occurring where “80 percent of available surface and groundwater is already allocated for municipal, industrial and agricultural uses.” The Ceres report was based on data for 39,294 wells listed on FracFocus.org, an industry-funded site where fracking companies disclose where they drill and, to a certain extent, what they put in their wells. It found that between January 2011 and May 2013, 97 billion gallons of water were used for fracking. Much of the water used was in Texas. In 2012, half of all fracking water usage occurred in the state. The Department of Agriculture recently deemed Texas a disaster area because of its drought.

US Fracking Boom Creating Crisis of Illegal Toxic Dumping - Industrial waste from fracking sites is leaving a "legacy of radioactivity" across the country as the drilling boom churns out more and more toxic byproducts with little to no oversight of the disposal process, critics warn. According to a new report in Bloomberg Wednesday, the controversial oil and gas drilling process known as hydraulic fracturing is "spinning off thousands of tons of low-level radioactive trash," which has spawned a "surge" in illegal dumping at hundreds of sites in the U.S. "We have many more wells, producing at an accelerating rate, and for each of them there’s a higher volume of waste,” Avner Vengosh, a professor of geochemistry at Duke University in Durham, North Carolina, told Bloomberg. Without proper handling, “we are actually building up a legacy of radioactivity in hundreds of points where people have had leaks or spills around the country.” Bloomberg reports: Some states allow the contaminated material to be buried at the drill site. Some is hauled away, with varying requirements for tracking the waste. Some ends up in roadside ditches, garbage dumpsters or is taken to landfills in violation of local rules. In that state’s Bakken oilfields, “it’s a wink-and-a-nod situation,” said Darrell Dorgan, a spokesman for the North Dakota Energy Industry Waste Coalition, a group lobbying for stricter rules. “There’s hundreds of thousands of square miles in northwestern North Dakota and a lot of it is isolated. Nobody’s looking at where all of it is going.”

North Dakota struggling to deal with radioactive fracking waste —Environmental regulators and North Dakota state officials have expressed concern that the state has failed to adequately adjust to the state’s sudden influx of crude oil output, a worry highlighted by the recent discovery of abandoned radioactive waste. Last month, the North Dakota Health Department announced that a large pile of oil filter socks –radioactive nets that are used to strain liquid during the oil production process – had been found at an old gas station in Noonan, a small town in the northwestern region of the state. The bags were covered in dust – an indication they had been there for some time – and dumped illegally at the mechanics station owned by a fugitive named Ken Ward, who reportedly worked in North Dakota’s fledgling gas and oil industry. “I suspect that he was doing contract work for some oil company and he told them he would – I’m sure for a price – take these and properly dispose of them,” North Dakota Waste Management Director Scott Radig told ThinkProgress. “He did it the cheap way, took the money, and took off.” That unfortunate discovery was the second event in just a few days in early March, as another pile of oil socks was found on flatbed trailers near a landfill outside another small town in northwestern North Dakota, where the majority of the state’s oil shale formation is located.

North Dakota Finds Itself Unprepared To Handle The Radioactive Burden Of Its Fracking Boom - North Dakota recently discovered piles of garbage bags containing radioactive waste dumped by oil drillers in abandoned buildings. Now, the state is trying to catch up to an oil industry that produces an estimated 27 tons of radioactive debris from wells daily. Existing fines have apparently not been enough to deter contractors from dumping oil socks — coiled filters that strain wastewater and accumulate low levels of radiation. The state is in the process of drafting rules, out in June, that require oil companies to properly store the waste in leak-proof containers. Eventually, they must move these oil socks to certified dumps. However, North Dakota has no facilities to process this level of radioactive waste. According to the Wall Street Journal, the closest facilities are hundreds of miles away in states like Idaho, Colorado, Utah, and Montana.Even though it is illegal, contractors have taken the occasional shortcut to dump the oil socks in buildings, on the side of the road, or at landfills. And the rate of dumping incidents has been on the rise as drilling activity has increased in the Bakken shale region, according to one North Dakota Department of Health study. Dump operators now even routinely screen garbage for radiation. If things don’t improve, oil drillers may risk turning parts of the state into EPA Superfund sites, which would mean a long and expensive clean-up.

Another County Bans Frackwaste - Shale gas industrialization creates billions of gallons of contaminated water, much more than the frackers know what to do with. Frackwaste is disposed of by contractors – tank truckers who contract with the frackers to get rid of the stuff. Since the truckers are paid by the load, they speed to and from the frack sites, killing people. And to avoid tipping fees at frackwaste dumps,they simply spill their loads on the roads. Given the 24/7/365 nature of the activity, there is no way to adequately monitor or police it. Since slathering roads in toxic radioactive frack filth is not a great idea, counties and towns have simply banned it. States should follow suit. There are not enough fat checks from frack lobbyists and Happy Gas Ads on TV to cover this scandal up. Remember, your county or town (or state) does not have to be fracked to get dumped on. “On Friday April 18th, the Schoharie County Board of Supervisors passed Local Law # 8 which prohibits the introduction of natural gas waste into wastewater treatment facilities, prohibits the storage and sale of natural gas waste products, and prohibits the application of natural gas waste products on any property within the County. The law sets a penalty not to exceed $25,000 and up to thirty days in jail for each violation. This landmark law sends a clear message that Schoharie County recognizes the danger of fracking waste and is committed to protecting the health and safety of its residents.”

Third Report in Three Days Shows Scale of Fracking Perils - The fracking industry is having a bad week. In the third asssessment in as many days focused on the pollution created by the booming industry, a group of researchers said Wednesday that the controversial oil and gas drilling practice known as fracking likely produces public health risks and "elevated levels of toxic compounds in the environment" in nearly all stages of the process.The latest research, conducted by the Physicians Scientists & Engineers for Healthy Energy, compiled "the first systematic literature review" of peer-reviewed studies on the effects of fracking on public health and found the majority of research points to dangerous risks to public health, with many opportunities for toxic exposure.“It’s clear that the closer you are [to a fracking site], the more elevated your risk,” said lead author Seth Shonkoff, from the University of California-Berkeley. “We can conclude that this process has not been shown to be safe.” According to the "near exhaustive review" of fracking research, environmental pollution is found "in a number of places and through multiple processes in the lifecycle of shale gas development," the report states. "These sources include the shale gas production and processing activities (i.e., drilling, hydraulic fracturing, hydrocarbon processing and production, wastewater disposal phases of development); the transmission and distribution of the gas to market (i.e., in transmission lines and distribution pipes); and the transportation of water, sand, chemicals, and wastewater before, during, and after hydraulic fracturing."

State Department Indefinitely Delays Keystone XL Pipeline Decision -- The U.S. State Department on Friday afternoon said that it is giving eight federal agencies an extension for reviewing the Keystone XL pipeline project proposal. The department said the decision partly hinges on Nebraska Supreme Court litigation that could affect the pipeline's route. For that reason, there's no timeline on the delay..@StateDept will provide more time for the submission of agency views on the proposed #KeystoneXL Pipeline Project. http://t.co/SSDvcNI1Kr— Department of State (@StateDept) April 18, 2014 "In addition, during this time we will review and appropriately consider the unprecedented number of new public comments, approximately 2.5 million, received during the public comment period that closed on March 7, 2014," the State Department said in a statement. While a Nebraska judge in February sided with landowners who argued that it was unconstitutional to grant the power of eminent domain to Gov. Heineman and, in turn, TransCananda to make way for Keystone, state Attorney General Jon Bruning appealed the ruling. The Lincoln Journal Star reported that "those following the case don't expect a decision until 2015."

Hamilton County, OH (Greater Cincinnati) OIL SPILL - Long road ahead to restore Oak Glen Nature Preserve following oil spill -- It was late evening on March 17 when neighbors reported smelling diesel near the Oak Glen Nature Preserve in Colerain Township. An underground pipeline run by a Sunoco subsidiary had ruptured and oil was oozing down a hillside creek, collecting in a pond and threatening to seep into the Great Miami River. A month later, you can still see oil ringing trees like high-water marks. Great Parks of Hamilton County spokeswoman Jennifer Sivak says, "you can still smell the oil." She's right, you can still smell it at different points along the stream as you hike up the hill to the break point. WVXU's Tana Weingartner traversed the spill line with Sivak and Stewardship Manager Bob Mason. Water is being pumped down the creek to flush out the oil. Crews use industrial hoses and rakes to unearth it and push it downstream where it's collected and hauled away. Mason explains, "They turn over the rock because much of the oil is trapped underneath. So just to go through and spray, the only thing they'd do is just get the very tops. This way they're turning them and releasing any oil underneath and then flushing." When the crew in white hazmat suits reaches the bottom, they'll start over again at the top of the hill and repeat until the oil is gone. Mason says remediation could last several more weeks and restoration could last years. Standing at the top of the hill gazing down on the exposed pipeline hovering over the stream of oily rocks, Mason takes a deep sigh and reflects on how he's feeling. "It's hard to...," he trails off. "I try not to get emotional now," he laughs before adding somberly, "It's been a tough four weeks."

Communities Find That Oil Trains Are A Disaster Waiting To Happen -- When a freight train carrying crude oil from North Dakota’s Bakken formation derailed and exploded in the middle of the Canadian town of Lac-Mégantic, killing 47 people and destroying half of the downtown, no one knew it’d mark the start of a new era of train disasters, or that so little would be done to keep more from happening. Less than a year and 10 oil train derailments later, it’s largely luck that has prevented another deadly disaster. Trains carrying crude travel through an unknown number of American cities on a daily basis, endangering countless residents, and safety efforts move slowly and with industry opposition. And Wednesday, the freight rail industry revealed that mandatory safety technology to prevent derailments and collisions will only be installed on 20 percent of tracks on deadline at the end of 2015. Examples of inaction on rail safety are plentiful. Firefighters say they aren’t trained to deal with derailments or explosions. Trains travel in secret, in one instance passing through a town for over a year before residents had any say. Thin-shelled railcars continue to carry crude oil even after their contribution to multiple fiery derailments, and new railcar safety standards still aren’t final. And the Bakken crude oil that’s driving the need for train shipments was only discovered to be especially flammable after several explosions and fires had occurred.

Drilling Company Sues BP For Loss Of Business After Deepwater Horizon Disaster - An oil drilling services company filed a lawsuit against BP Monday, seeking compensation for the loss of business it says resulted from the Deepwater Horizon oil spill. Crescent Drilling and Production Inc., which provides engineering services for companies drilling for oil bothon and offshore in the Gulf of Mexico, alleges that because of the moratorium imposed on new Gulf leases after the spill, Crescent experienced a loss of revenue that it wants BP to be held accountable for. The company claims that under the Oil Pollution Act, BP is responsible for all damages that result from the oil spill, including Crescent’s lost income and business opportunity. “As direct and foreseeable response to the Oil Spill, and the foreseeable governmental response, including the Moratoria imposed in direct response to the Oil Spill, Crescent sustained a loss in business as various projects were suspended or cancelled by Crescent’s drilling operator clients,” the lawsuit reads.

America’s Energy Edge - Only five years ago, the world’s supply of oil appeared to be peaking, and as conventional gas production declined in the United States, it seemed that the country would become dependent on costly natural gas imports. But in the years since, those predictions have proved spectacularly wrong. Global energy production has begun to shift away from traditional suppliers in Eurasia and the Middle East, as producers tap unconventional gas and oil resources around the world, from the waters of Australia, Brazil, Africa, and the Mediterranean to the oil sands of Alberta. The greatest revolution, however, has taken place in the United States, where producers have taken advantage of two newly viable technologies to unlock resources once deemed commercially infeasible: horizontal drilling, which allows wells to penetrate bands of shale deep underground, and hydraulic fracturing, or fracking, which uses the injection of high-pressure fluid to release gas and oil from rock formations. The resulting uptick in energy production has been dramatic. Between 2007 and 2012, U.S. shale gas production rose by over 50 percent each year, and its share of total U.S. gas production jumped from five percent to 39 percent. Terminals once intended to bring foreign liquefied natural gas (LNG) to U.S. consumers are being reconfigured to export U.S. LNG abroad. Between 2007 and 2012, fracking also generated an 18-fold increase in U.S. production of what is known as light tight oil, high-quality petroleum found in shale or sandstone that can be released by fracking. This boom has succeeded in reversing the long decline in U.S. crude oil production, which grew by 50 percent between 2008 and 2013. Thanks to these developments, the United States is now poised to become an energy superpower. Last year, it surpassed Russia as the world’s leading energy producer, and by next year, according to projections by the International Energy Agency, it will overtake Saudi Arabia as the top producer of crude oil.

Did crude oil production actually peak in 2005? - "Haven't we been hearing from the oil industry and from government and international agencies that worldwide oil production has been increasing in the last several years?" The answer, of course, is yes. But, the deeper question is whether this assertion is actually correct. Here is a key fact that casts doubt on the official reporting: When the industry and the government talk about the price of oil sold on world markets and traded on futures exchanges, they mean one thing. But, when they talk about the total production of oil, they actually mean something quite different--namely, a much broader category that includes all kinds of things that are simply not oil and that could never be sold on the world market as oil. I've written about this issue of the true definition of oil before. But Texas oilman Jeffrey Brown has been bending my ear recently about looking even deeper into the issue. He makes a major clarifying point: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil. "Basically, crude oil peaked [in 2005], but natural gas and natural gas liquids [including lease condensate] didn't," he believes. Natural gas production has continued to grow, and as it has, its coproducts have also grown--many of which have been lumped in with the oil production statistics. Here's what's being added to underlying crude oil production and labeled as oil by the oil companies and reporting agencies:

Russia forges ahead with pipeline skirting Ukraine – Russia brushed off the threat of western energy sanctions on Friday and pledged to press ahead with plans to build a new gas export pipeline that would strengthen its hold on European gas markets. Russia is continuing work on the 2,500km South Stream pipeline that will carry gas across the Black Sea to southern and central Europe, Alexander Novak, Russian energy minister told a press conference in Moscow on Friday.South Stream was “proceeding on the basis of intergovernmental agreements signed by Russia and countries participating in the project,” he said. It was legally impossible to suspend project at this point, he added. Novak was speaking one day after the European Parliament urged the European Union to adopt tougher measures to punish Russia for destabilising Ukraine. In a resolution, the European Parliament said sanctions should be broadened to include not just Russian individuals but Russian companies as well, especially those involved in the energy sector. European member states involved in South Stream should abandon the project and seek alternative, non-Russian gas supplies. South Stream is designed to transport up to 63bn cubic meters a year of Russian gas across the Black Sea to Bulgaria for onward transport into southern and central Europe. Six European governments including Austria, Bulgaria, Croatia, Greece, Hungary and Slovenia have signed agreements with Russia to host the pipeline on their respective territories.

Oil leak and tap water outage shows China pipeline dangers - FT.com: Water supplies to a northwestern Chinese city were cut off for a day after leaking oil from a petrochemical plant contaminated the city’s water treatment plant, highlighting once again the dangers posed by China’s ageing pipelines and untrammelled development. A water channel between two water treatment plants run by French infrastructure firm Veolia in Lanzhou crossed over a corroded pipe belonging to China National Petroleum Corp, the country’s largest oil firm, the local government said on Saturday. Residential water supply was cut on Friday in Lanzhou, which has a population of 4.6m, after Veolia registered a spike in levels of benzene, a carcinogen, in the water it was treating. The incident in Lanzhou comes only a few months after 62 people were killed in the coastal city of Qingdao after crude oil from a pipeline belonging to China’s other major oil firm, Sinopec, leaked into storm sewers and exploded. After that incident, China vowed a national review of its oil and gas pipelines. A senior safety official said many similar and “quite shocking” cases of corrosion were found. After years of essentially allowing Sinopec and CNPC, parent of listed PetroChina, to regulate themselves, the ongoing corruption investigation into the patronage networks of former energy tsar Zhou Yongkang has shed light on the fiefdoms and business practices of the duopoly. Last year, the environment ministry halted approval of new refineries by either firm due to lack of compliance with environmental regulations; after the Qingdao blast, Sinopec suffered a rare and public rebuke.

China says massive area of its soil polluted: A huge area of China's soil covering more than twice the size of Spain is estimated to be polluted, the government said Thursday, announcing findings of a survey previously kept secret. Of about 6.3 million square kilometres (2.4 million square miles) of soil surveyed—roughly two thirds of China's total area—16.1 percent is thought to be polluted, the environmental protection ministry said in a report. The study, which appeared on its website, blamed mining and farming practices among other causes. "The national soil pollution situation is not positive," the ministry said, adding that more than 19 percent of the farmland which was surveyed is polluted. The ministry last year described the results of its soil pollution survey as a state secret and refused to release the results, a move which incensed environmental campaigners. The government has come under increasing pressure in recent years to take action to improve the environment, with large parts of the country repeatedly blanketed in thick smog and waterways and land polluted. More than 80 percent of the soil pollution was caused by "non-organic contaminants", the ministry said in its report. The survey was carried out over an eight-year period from 2005 to 2013.

Beijing’s Bad-Air Days, Finally Counted -- Thanks to the U.S. State Department, Beijing residents finally have the answer to one of the city’s greatest mysteries: How often is the air polluted?Well, a lot, a resident would say. But how many is a lot? Heavy pollution levels can stretch for weeks, leaving locals to grouse over hot pot about how the smog seems to last forever. Then a crisp, blue-sky day comes with the western wind, and it’s all forgotten. China Real Time crunched the recent release of historical data on Beijing pollution from the U.S. State Department, which it gathered from a monitor installed at the U.S. Embassy there in 2008. First we crunched those hourly readings into daily averages. Then we converted those readings to match a widely used air-quality index and compared it to U.S. standards for air quality, which tell the public whether the air quality is good — or not good — for a person’s health. The results aren’t pretty. Based on data collected for 2,028 days between April 2008 and March 2014, only 25 days were considered “good” by U.S. standards. Good, on the index, is a reading of 50 or below. The U.S. Environmental Protection Agency says readings of below 100 on the index are “satisfactory.” But by that U.S. standard, Beijing isn’t satisfactory, either. Beijing’s air-quality index has averaged above 100 for 1,632 days — or about four-fifths of the time — since April 2008. Based on Chinese standards, the air-quality index has averaged above 100 for 1,105 days — or a bit more than half of the time.

Chinese steel traders at breaking point- A two-year slump in Chinese steel prices has driven many steel traders to the wall, touching off a brutal credit crunch as loose collateral pledges and loan guarantees messily unwind. State news agency Xinhua predicted on Feb. 7 that at least a third of the country's 200,000 steel trading companies will fail. Their travails are already having an impact on China's banks. Zhu Xiaohuang, president of China Citic Bank, said earlier this year that the 7.7 billion yuan ($1.23 billion) increase in the bank's non-performing loans last year primarily related to credit extended to steel traders since 2011. "We started to notice the bad loans of steel trading and manufacturing companies in this area in the second half of 2013," Song Xianping, director of risk management of Agricultural Bank of China, recently told reporters. More than 20 banks in southeast China have ceased lending to steel traders since last August, according to Moneyweek, a Shanghai-based financial magazine. "Almost all banks in the city of Hangzhou have stopped approving loans to them," said Xu Saizhu, a manager at industry information site Mysteel. "Every day, I hear of debtors running off," said one Shanghai steel trader from Shunde, Guangdong Province. Local media have reported steel traders fleeing overseas or committing suicide. "It's the worst time I've seen," said the trader.

China engineers ‘Potemkin defaults’ to mask debt reality - FT.com: In the past two months, China has suffered its first domestic bond default in recent history and a series of small bankruptcies that have some investors fretting the country could face its very own “Lehman moment”. But behind the lurid headlines and fear of financial panic, something more complicated is happening. These systemically insignificant financial failures are being hyped up by China’s state-controlled media – and then unwittingly amplified by the international press – as part of a campaign of government-sanctioned “Potemkin defaults”. Led by the People’s Bank of China, the central bank, which has responsibility for maintaining stability in the financial system, Beijing has launched a campaign of highly public, but controlled defaults as a way to tackle moral hazard and impose market discipline. At the same time, for any bankruptcy or default that could threaten regional or systemic stability, the government continues to step in quietly and co-ordinate loan rollovers and bailouts. That is not to say the small defaults that have happened are fake or there are no serious risks in the debt-laden Chinese system. The risks have ballooned as China has added new credit roughly equal to the size of the entire US banking system in just the past five years.

Beijing rejects IMF's hard-landing warning for China's economy (Reuters) - A senior Chinese official hit back on Saturday at International Monetary Fund warnings that China's economy faced the danger of a hard landing due to poor asset quality, saying the government was taking action to deal with financial risk. Chinese Vice Finance Minister Zhu Guangyao said China worked closely with the IMF but did not agree with all of its analysis. "In general, we think they are a very professional financial institution, but some of the methodology used and some traditional thinking, they also need reform," he told a small group of Western journalists on the sidelines of the IMF and World Bank spring meetings in Washington. "We hope that their analysis and methodology can really reflect a country's reality," he said. "We said not just to the IMF, but also to the World Bank, that not one size fits all. If your policy suggestion is (to be) a valuable suggestion, you must base it on reality." IMF Managing Director Christine Lagarde warned of the risk of what she termed a "hard landing" in China, the world's second-largest economy, and negative repercussions on other emerging markets in her Global Policy Agenda released at the start of the meetings in Washington on Thursday. While her report said the risk was small, it urged China to rein in risks in its shadow banking system and liberalize its financial sector to improve the allocation of credit.

Chinese Finance Official: Please Excuse Us While We Renovate Our Economy - The world’s second-largest economy is getting a long overdue makeover. That means slower growth.Get over it, said one of China’s top finance officials. “Our top priority is restructuring,” China’s vice finance minister, Zhu Guangyao, said in an interview Saturday on the sidelines of the International Monetary Fund and World Bank’s spring meetings in Washington. “We face the challenge of an economic slowdown. But very frankly I think the outside is more concerned than [we are] domestically with this slowdown.”Mr. Zhu emphasized job creation, cleaning up the environment and passing legislation to give more budgetary freedom to China’s heavily indebted provinces as the government’s top objectives. Mr. Zhu’s comments echoed remarks Thursday by Premier Li Keqiang at an annual gathering of business and political leaders in China. Mr. Li told the gathering that Beijing would not resort to new stimulus measures just to meet its target of 7.5% growth, and that it was willing to accept some fluctuation as growth slows. Dimming prospects for immediate stimulus may disappoint investors who bet recently that Beijing would be forced to step in to arrest a sharper-than-expected slowdown. But the message that China is determined to endure short-term economic pain to press ahead with structural reforms is likely to encourage economists who say China needs to move quickly to wean its economy from runaway credit, over-investment and excess capacity.

China’s Growth Slows to 24-Year Low of 7.4 Percent — China’s economic growth slowed to 7.4 percent in the first quarter, raising the risk of job losses and a potential impact on its trading partners.The figure reported Wednesday by the government was down from the previous quarter’s 7.7 percent. It came in below the full-year official growth target of 7.5 percent announced last month.Beijing is trying to guide China to slower, more sustainable growth based on domestic consumption rather than trade and investment following a decade of explosive expansion.Growth in retail sales, factory output and investment also slowed, raising the possibility of politically dangerous job losses.Chinese leaders have signaled they are willing to tolerate growth below the official target so long as the economy keeps creating enough jobs to avoid potential unrest. In a sign of concern about employment, they launched a mini-stimulus in March of higher spending on construction of railways, low-cost housing and other public works.

Baffle With Fake BS: Chinese Q1 GDP Beats And Misses At The Same Time - In keeping with the tradition of Chinese data being fully Schrodingerized, not to mention completely goalseeked and fake, moments ago China reported that its GDP for the quarter which ended 15 days ago has not only been compiled and analyzed, but somehow once again it both beat and missed at the same time. It beat on a Year over Year basis rising 7.4%, if far below the 7.7% expected just fractionally above the 7.3% expected, while at the same time it missed on a sequential basis with Q1 GDP growing 1.4% Q/Q, just below the 1.5% expected, suggesting the annualized Q/Q has slowed to a meager 5.7% - a number far below China's 7.0% minimum threshold target. Some other Schrodingerian, and just as fake, data:

Retail Sales beat at 12.2%, above the expected 12.1%, but sharply below the 13.6% in Q4

Industrial Output missed at 8.8%, below the expected 9.0%, and also well below the 9.7% previously

Fixed Asset Investment also slide from 19.6% at Q4 to just 17.6%, also missing the 18% estimate, as the capex boom from building ghost cities is slowly grinding to a halt, and finally

Real Estate development dipped from 19.8% to only 16.8%

China GDP: A Massaging of the Figures? - China’s GDP growth fell in the first quarter to its slowest pace since September of 2012, slipping to 7.4% on-year growth from 7.7% in the fourth quarter. The increase was slightly higher than economists’ expectations of a 7.3% gain. Authorities released other data that suggested continuing weakness, but not at a quickening pace. Industrial production grew 8.8% on year in March below expectations of 9% but up from an average 8.6% expansion in January and February, combined to limit distortions from the Lunar New Year holidays. Retail sales were 12.2% higher on-year in March, up from 11.8% growth in January and February. Fixed-asset investment, meanwhile, slipped to a 17.6% expansion on year in the first quarter from 17.9% growth in the first two months. Markets rose on the data, with both the Shanghai and Hong Kong stock markets clicking higher. But what did the numbers say for long-term growth prospects and the chance for more government stimulus? Some economists saw a massaging of the GDP figures. Others said the data showed a slight recovery in March. (Comments edited slightly for style):

Electricity, Steel Hint at Economic Uptick in China —Official data shows China’s economy in the first quarter grew at its slowest pace in 18 months, but two proxies point to some resilience. Electricity output—an indicator favored by Premier Li Keqiang over gross domestic product—and crude steel production grew faster in March than in the preceding two months. In addition, steel output in March hit a record high, the National Bureau of Statistics said. Back in 2007, when he was party boss of Liaoning province, Mr. Li quipped that when it comes to growth data, officials might lie—but volts do not. Electricity output in March was up 6.2% from a year earlier to 453 billion kilowatt-hours, faster than the combined 5.5% pace of January and February (the two months were counted together to limit distortions from the Lunar New Year holidays). Steel production was up 2.2% to a record 70.3 million tons. That compares with a 0.6% expansion in February and a contraction of 3.2% in January. The data added to a sense China’s economy may have stabilized in March. Other data released Wednesday—including retail sales and industrial production—edged up from the previous two months. In part, the uptick is seasonal: Economic activity usually is subdued during the Lunar New Year holidays and rebounds in March. But the upturn might also signal a return of confidence, however fragile, among manufacturers.

Rising China defaults turn investors off bad debt factory Cinda (Reuters) - Investors have soured on prospects for China's only listed bad debt management firm, as Beijing's newfound willingness to allow struggling firms to default on loans signals a harsher environment for China Cinda Asset Management. Cinda's shares soared on their debut last December as investors flocked to a rare chance to buy exposure to China's bad debt market, then effectively guaranteed by the government. Firms like Cinda, 25 percent-owned by China's Ministry of Finance, make money by buying up underperforming loans and slowly turning them around for profits. Now as China Huarong Asset Management Co Ltd, the biggest of the four bad debt firms, prepares to list, investors fear the business model is at risk and many are selling Cinda stock short in a calculated gamble that it will drop. If China simply lets more loans and trust products go under, rather than allow the likes of Cinda to take them on, what once seemed a good bet will lose its lustre. "Before, people did not think the government will allow some trust products go bankrupt. Basically, they assumed the (state-backed) banks guarantee their payments,"

China: Avoiding the Minsky Moment -- While the Chinese Dream is ideal and serene, the Chinese Reality has the potential to be a nightmare. Recently, China experienced the embarrassment of its first junk bond default, which came on the heels of its first corporate bond default. In the coming months, a slew of Chinese bank trust products will reach maturity, a sizable number of which will be unable to make their interest payments, much less payments on principal. Recent data shows falling industrial material prices, indicating increasing overcapacity. This could lead to lower profits for some of China’s most highly leveraged industries, and potentially lower GDP growth numbers in the future. None of this bodes well for the country’s financial stability, especially considering the increasing importance of the country’s burgeoning shadow banking system. Unless the government and financial sector can work in tandem to remedy this situation, shadow banking could potentially set off the country’s first major financial crisis.“Shadow banking” is a catchall term referring to non-bank financial institutions, covering everything from bank trusts to bond markets to pawn shops. In recent years, shadow-banking operations have exploded in China. Growing domestic demand for capital and high-yield investment products, restrictive capital controls and banking regulations, as well as poor capital allocation by domestic banks, have all spurred a variety of private-sector financial innovations—the shadow banks. These innovations have in turn provided China’s expanding middle class with alternative investment opportunities outside of real estate and low-yield bank deposits. Shadow banking has supplied many cash-strapped SMEs with much-needed capital, which is denied them by traditional banks. In addition, the shadow banking system has worked to deepen China’s stunted capital markets, and to a certain extent, has also stemmed international capital flight.

The Spark That Could Set Fire to China’s Growth Plans - The deepening property glut in China’s smaller and medium-sized cities is the kindling that could set ablaze the country’s plans for steady 7.5% growth. If that’s the case, what’s the match? Most economists — even those skeptical of China’s growth story — say the country isn’t likely to experience a “Lehman moment.” They don’t expect to see one outsized decision that implodes the economy, the way the U.S. government’s decision not to save Lehman Brothers from bankruptcy in 2008 set in motion a quick chain reaction that ended in a deep global recession. Rather, the risk for China is a much deeper slowing of growth than officials anticipate, or can head off. Japan is more the model there. Like China, it too was rapidly growing. It also had an activist government that expected companies to follow its lead. And it had a huge stock of foreign exchange reserves. None of that helped stave off the effects of a real-estate bust that saddled the banks with bad debts, constricted credit and made ordinary people wary of spending. One obvious candidate for the match is an overall slowdown in growth. In that scenario, consumers reduce spending; developers can’t unload property; debts go unpaid; banks stop lending; GDP growth slows even more. And so on. Paradoxically, reform measures meant to solidify China’s growth over the long term could also become the match that could touch off a conflagration. A big push for interest rate liberalization or capital account liberalization or property taxes could backfire. How? Let’s take them one by one.

Surging Loans to China Could Pose a Risk to Hong Kong’s Economy -- Slowing growth in China’s massive economy has raised concerns that the rest of Asia would suffer if China continues to lose momentum. Rapid growth in lending to the mainland would seem to put Hong Kong at particular risk in case China’s economy experiences a “hard landing.” Of course, few analysts expect Chinese growth to slow sharply:. More likely is a gradual deceleration, after data Wednesday showed China’s gross domestic product growth slowed to 7.4% in the first quarter of the year, from 7.7% in the final quarter of 2014. Most analyses have focused on how slower Chinese growth would impact Asia through the trade channel. Even by that metric, Hong Kong – which sends 28% of its exports to China – would appear to be among the most exposed. Other economies with heavy export exposure to China include Singapore, Taiwan, South Korea and Vietnam, according to a recent report from Capital Economics. But the greatest risk for Hong Kong would appear to be through the financial channel: Lending to mainland businesses by all authorized institutions (“AIs” in the attached chart) has surged from about 5% of total banking sector assets in 2007 to nearly 20% today, according to the Hong Kong Monetary Authority.

Appreciate the yuan depreciation - Since the beginning of this year, the renminbi has been depreciating against the US dollar. That marked a departure from the earlier trend of the Chinese currency appreciating against the US greenback since the exchange rate reform in 2005. On Jan 15, the People's Bank of China's midpoint rate was 6.04 yuan for one US dollar. But by March 14, the same had fallen to 6.14 yuan. The bank announced that, effective March 17, the exchange rate would be allowed to rise or fall 2 percent from a daily midpoint rate set each morning by the central bank. Since then the yuan has been on a downward spiral. On March 21 the rate plummeted to 6.22 yuan. Compared with the exchange rate in mid-January, the yuan has depreciated more than 3 percent since then. However, the recent devaluation of the yuan is a rare phenomenon and there are several reasons for it. Due to the US Federal Reserve's quantitative easing policy, short-term capital has been flowing out of emerging economies since the second half of last year, and currencies of emerging economies have been facing devaluation pressures. Changes in the international environment have also weakened the expectations for yuan appreciation. Since January, the appreciation trend has slowed, or even moved onto a plateau. It is obvious that these changes have played a major role in the current round of devaluation.

Yuan Depreciation Is Deeper Than You Think -- The U.S. Treasury is up in arms about China’s move to devalue the yuan, which the Treasury folks, in a semiannual report, called “unprecedented.” That may be an overstatement intended to put pressure on China to reverse course and start the yuan appreciating again. But guess what? The yuan depreciation this year is probably steeper than you think. Since the beginning of the year, the yuan has depreciated 2.8% against the dollar– a number that’s been widely used. But that’s in “nominal” terms, meaning the number doesn’t account for the different levels of inflation in the U.S. and China. When factoring in inflation, calculates Brookings Institution researcher Karim Foda, the yuan has actually fallen 3.2% over the same time period.Before 2014, when the yuan was was steadily climbing in value against the dollar, factoring in inflation tended to magnify the appreciation. That’s because inflation in China was higher than in the U.S. But now the reverse has occurred, says Mr. Foda, and U.S. inflation has moved higher than China’s. The result: the real – that is inflation-adjusted—fall in the yuan is steeper. Here are Mr. Foda’s calculations:

Japan Risks Public Souring on Abenomics as Prices Surge - Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales-tax bump. Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5 percent, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of Japan’s economy for two years running in data compiled by Bloomberg. The challenge for Abe and the Bank of Japan is to keep the public focused on the long-term benefits of exiting deflation when wages are yet to pick up and, according to BOJ board member Sayuri Shirai, most people still see price gains as “unfavorable.” Any jump in inflation that’s perceived as excessive by a population more used to prices falling could worsen consumer confidence and make it harder to boost growth. “Households are already seeing their real incomes eroding and it will get worse with faster inflation,”

Consumer Confidence Collapses In Japan - As a little addendum to our recent ritual lambasting of Abenomics, here are the latest news on Japan's consumer confidence – the reading, mind, is from March – before the introduction of the higher sales tax.“Japan’s consumer confidence fell in March to the lowest level since August 2011, a reading that may tumble further this month after a sales-tax increase on April 1 sapped the public’s spending power.The reading of 37.5, down from 38.5 in February, was released by the Cabinet Office in Tokyo today. About 90 percent of respondents to the survey expect prices to rise over the next 12 months, the highest in comparable data back to 2004.Prime Minister Shinzo Abe risks the public souring on his campaign to sustain growth in the world’s third-biggest economy as prices start to rise while wages stay stagnant. Weaker sentiment could make it harder to drive a rebound from a contraction forecast this quarter, and raise the odds that the Bank of Japan adds to its already unprecedented easing.The confidence reading was 39.9 when Abe took office in December 2012, and rose to 45.7 in May last year — the highest point during his current term as prime minister. The Topix index of stocks is down more than 10 percent this year after soaring 51 percent in 2013.

G-20 and US Tell Japan to End QE - It looks like QE is going to end with a whimper instead of a bang.The bigwigs in the G-20 have put the kibosh on Japan’s money printing extravaganza. While most analysts expect the Bank of Japan (BoJ) to announce more “easing” in the days ahead to counter weakening economic data and droopy stock prices; it’s not going to happen. Why? Because the big boys have told the BoJ to knock it the hell off, that’s why? Here’s the scoop from the Japan Times: “Despite lingering market pressure on the Bank of Japan to take further easing steps, its Group of 20 counterparts might not welcome the central bank’s next move. With concern mounting about how the BOJ’s unprecedented purchases of government bonds and risky assets will impact global markets, the G-20 finance chiefs might pressure the BOJ in the near future to clarify how it will phase out the deflation-busting measures… Japan Bank for International Cooperation Gov. Hiroshi Watanabe said additional BOJ easing measures would not be supported by the United States, which is gradually reducing its own bond purchasing program. “I don’t think the United States will support” further BOJ easing.” (“Experts urge BOJ to draft exit strategy“, Japan Times) Repeat: “additional BOJ easing measures would not be supported by the United States.” In other words, ‘Stop what you are doing…NOW”.

Are Administration Claims of Progress on TransPacific Partnership Negotiations in Japan Credible? - Yves Smith - As readers may know, the mislabeled trade deal known as the TransPacific Partnership hasn’t looked like it has great odds of being consummated. The Wikileaks publication of two important draft chapters showed considerable opposition from America’s counterparties on numerous important provisions. As we’ve reported, the Japanese press has said, in pretty direct terms, that the US has not been willing to bargain and Japanese aren’t interested in being ordered about. In the US, Congress is in revolt. Congress had over time abdicated much of its responsibility for these treaties by giving successive Administrations “fast track” authority, which would allow them to negotiate a trade pact, then present it to both Houses for a yea or nay vote. But the TransPacific Partnership, and its evil sister, the TransAtlantic Trade and Investment Partnership, have been shrouded in so much secrecy as to raise Congress’ hackles. House Speaker Boehner has said he doesn’t have the votes to pass fast track authority, and Senate Majority Leader Harry Reid has stated he won’t table the bill. But the Administration has not given up. We warned that it might try pushing a bill through in the lame duck session at the end of this year. And it’s also trying to get those difficult Japanese in line. A plugged-in DC contact wrote, clearly concerned:[US Trade Representative Froman] is in Japan NOW trying to grease the skids for Obama’s “heroic” deal storyline during April 23-25 AND he is making some headway! At the same time, the Administration also appears to be ramping up its PR war in the US. As Public Citizen points out in a new paper, it’s become hard to sell the pending trade deals using the usual “free trade” dog whistle. Some of the media has wised up to the fact that past trade pacts such as NAFTA cost the US jobs. And when unemployment is high and most of the jobs being created are low-quality, badly paid service work, ordinary people are more concerned than in the past about preserving employment at home.

TPP Hara-kiri: Will Japan Kill Off This Trade Pact? --Two years ago, I described Japan joining negotiations to enlarge the existing TPP membership as a non-starter mainly because of Japan's strong agricultural lobbies blocking off any sort of liberalization of sensitive crops--especially rice. There too remains the quite frankly idiotic complaint Americans have that the Japanese car market is "protected" since they have time and again failed to sell their oversized, gas-guzzling, left-hand drive cars that are unsuitable for sale in Japan. Yet, for obvious reasons, the US has been keen on Japan joining since it's the world's third largest economy and would in theory induce "bandwagoning" effects wherein others will feel they cannot be left behind and join as well. As it is turning out so far, Japan has [surprise!] been the most intransigent of parties to TPP negotiations over agriculture. The US Trade Representative has already complained about their Japanese counterparts:The US has accused Japan of blocking progress on a trade deal between 12 countries on the Pacific Rim by not allowing open access to its markets for agricultural products and motor vehicles. In his most critical comments yet on Japan, Michael Froman, the top US trade official, said: “We can’t have one country feeling entitled to take off the table and exclude vast areas of market access while the other countries are all putting on the table more ambitious offers...” Japan wants to maintain – or phase out slowly – tariffs on five agricultural products including rice, beef, and pork that it has declared “sacred”. The two countries also disagree on what is needed for the three big US carmakers to compete on a level playing field with Toyota, Nissan and others. Harakiri here refers to political suicide by Japanese politicians. Removing protections on what they call "sacred" sectors (including beef, of course) would result in lost votes from rural interests who've traditionally supported the Liberal Democratic Party (LDP) and played a not-insignificant role in keeping it in power. So, apparently, the US is now backtracking. Call it a "low-standard, unambitious, shallow" agreement instead:

Obama Aims to Energize Trade Talks in Japan Visit - President Barack Obama’s visit to Japan and other Asian countries next week is intended to provide further impetus to Pacific trade negotiations that have bogged down over disagreements with Tokyo. A senior administration official said Friday that talks with Japanese Economy Minister Akira Amari in Washington this week yielded some progress, but that considerable differences remain on the key outstanding issues including boosting access to Japan’s car and agricultural markets. Mr. Obama next week is visiting two countries — Japan and Malaysia — negotiating the Trans-Pacific Partnership with the U.S. and two countries — Korea and the Philippines — that have expressed some interest in joining. The TPP is the economic centerpiece of the Obama administration’s policy pivot to Asia. Much of Mr. Obama’s discussions during the trip will involve strategic and security issues as China eyes a bigger role in the region. Besides the difficult bilateral talks with Japan, the U.S. is in continual discussions with nearly all of the other TPP countries, the official said. Ministers from all 12 countries are set to meet in mid-May in Vietnam. On Thursday, Japanese Prime Minister Shinzo Abe reiterated his determination to reach a trade deal soon: “We want to bring the talks to an agreement to make the TPP a new economic architecture for the Asia-Pacific region.” Beef and pork are among the most controversial agricultural issues dividing Washington and Tokyo. Japan sees a recently concluded free-trade agreement with Australia as a template, but U.S. officials say Tokyo’s agreement with Australia doesn’t open its markets to a sufficient degree. Japan is also coming under pressure to increase or eliminate its quotas on U.S. shipments of rice and wheat.

Malaysia stands firm on TPP ahead of Obama visit- -- U.S. President Barack Obama hopes to make headway on Trans-Pacific Partnership talks during his trip to Malaysia on April 26, but the country aims to use its deepening ties with China for extra leverage. The Obama visit will not serve as pressure to sign the pact, Malaysian International Trade and Industry Minister Mustapa Mohamed said last month. The country's opposition to reforms setting conditions for competition between state-owned and private businesses is one reason for the stalemate in negotiations. Malaysian policy officially favors ethnic Malays, who make up 60% of the population. They are the biggest backers of the ruling party, with many working at state-owned companies. Swallowing the Washington-proposed reforms could erode the government's support base.Malaysia wields significant influence in the Association of Southeast Asian nations, but its relations with Washington have not necessarily been warm. Former Prime Minister Mahathir Mohamad, who considered himself a spokesman for developing and Islamic countries, was a frequent critic of the U.S. The TPP is a way to help mend ties with the U.S., says one diplomatic source. With negotiations stalled on a prior free trade agreement between the two, Najib himself has apparently been positive about the larger pact. But Malaysia has been growing more confrontational toward the U.S. -- a development in which China may have a hand.

Global Supply Chains and Macroeconomic Relationships in Asia -- The increase in vertical specialization in Asia has implications for the strength of linkages between the region’s economies, and the tendency to manage intra-regional exchange rates. From the paper: First, the conventional means of measuring international competitiveness are going to be less and less adequate, as production becomes more fragmented. … Second, the increasing role of intermediate inputs will likely drive down exchange rate pass through. This is true even if the increase is due to increasing arms-length transactions. … Third, business cycle correlations are rising throughout the region. The more prominent increases are often associated with China, a finding consistent with China’s growing role in the global supply chain. Furthermore, the propagation of shocks throughout the East Asia system is consistent with China driving movements in output, at least in Korea and Taiwan. Finally, there is evidence that the central banks of the region are paying more heed to the Chinese currency’s value. This is true at the high frequency (daily) and at lower frequency (monthly); it’s true with respect to rates of depreciation, as well as levels of exchange rates. Since these relationships are not structural, there is no guarantee that they will remain in place. At the same time, continued integration by way of production fragmentation should make central bankers pay extra heed to stabilizing currency values against each other.

US Blasted on Failure to Ratify IMF Reforms - While Republicans complain relentlessly about U.S. President Barack Obama’s alleged failure to exert global leadership on geo-political issues like Syria and Ukraine, they are clearly undermining Washington’s leadership of the world economy. That conclusion became inescapable here during this week’s in-gathering of the world’s finance ministers and central bankers at the annual spring meeting here of the International Monetary Fund (IMF) and the World Bank. In the various caucuses which they attended before the formal meeting began Friday, they made clear that they were quickly running out of patience with Congress’s – specifically, the Republican-led House of Representatives – refusal to ratify a 2010 agreement by the Group of 20 (G20) to modestly democratise the IMF and expand its lending resources. “The implementation of the 2010 reforms remains our highest priority, and we urge the U.S. to ratify these reforms at the earliest opportunity,” exhorted the G20, which represent the world’s biggest economies, in an eight-point communiqué issued here Friday. “If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps…” the statement asserted in what observers here called an unprecedented warning against the Bretton Woods agencies’ most powerful shareholder. The message was echoed by the Group of 24 (G24) caucus, which represents developing countries, although, unlike the G20, its communique didn’t mention the U.S. by name.

Amid Warnings of Low Inflation, J.P. Morgan says Prices Set to Rise -- The IMF againsounded the alarm bell at the weekend over low global inflation. But has the worst of anemic price rises already passed the world economy? That, at least, is the view of J.P. Morgan Chase & Co. economists. In its weekly roundup of global economies, J. P. Morgan said it believed inflation has reached a low point after two-and-a-half years of falling price growth. The bank noted that global consumer prices grew just 2% on year in February, their slowest pace since late 2009. Slowing growth in emerging markets, notably China, added to sluggish price growth in the U.S. and Europe. But J.P. Morgan now expects inflation to pick up. There are a few factors at play. Global growth is picking up, with the U.S. economy leading the way. This should “gradually turn the tide away from global disinflation,” the bank said. Agricultural commodity prices are firming this year after a 23% slide from their June 2012 peak. Partly this is due to dry weather, which has hurt global cereal crop output. Japan’s sales-tax increase on April 1 is also likely to add to the uptick in global prices in the short term, the bank said. That doesn’t mean the specter of disinflation has disappeared. It remains a risk in Europe, where J.P. Morgan noted the central bank has been reluctant to use additional stimulus despite low inflation. The Bank of Japan also is expected to ease further this year as consumer demand fades in the wake of the sales-tax hike. Asia’s poor exports performance, and concerns over Chinese growth, add to the worries.

Rebuttal for Rajan: Bernanke Defends U.S. Policy in Visit to Mumbai -- Less than a week since Reserve Bank of India Governor Raghuram Rajan criticized U.S. monetary policy in a visit to Washington D.C., former U.S. Federal Reserve chairman Ben Bernanke, landed in Mumbai with a rebuttal. More than 800 people gathered at a hall in the business district of India’s financial capital–and home to the RBI—to hear Mr. Bernanke speak Tuesday night as part of an annual speaker series. Just last Thursday, the RBI’s inflation-fighting Mr. Rajan used a long speech at the Brookings Institution in Washington to outline his concern that the central banks of rich countries are not taking into consideration the spillover effects of their loose monetary policies. Easy money policies in the U.S. and elsewhere has triggered inflation and volatility in India and other emerging markets. Mr. Bernanke was sitting in the audience in Washington but in Mumbai Tuesday he had the stage.After speaking for five minutes, Mr. Bernanke sat down in a white upholstered armchair and answered questions for more than half an hour. He said that U.S. monetary policy has been good for the world because an expanding U.S. economy lifts other economies. “Emerging economies are better off when investor countries are growing quickly,” he said. “An unconventional monetary policy was necessary to keep the U.S. economy growing and effective. In that respect, it’s in everyone’s interest to have the U.S. economy growing faster.” He said he and Mr. Rajan know and respect one another and have met repeatedly for long discussions about policy during their careers. “I have always viewed him as a close colleague, good economist and good central banker.”

Slowdown, rising interest rates affecting loan repayments: Moody’s Analytics -- Moody’s Analytics on Tuesday cautioned that deterioration in credit conditions is already being felt in India, where slower economic growth and rising interest rates have made it tougher for borrowers to repay debt. Moody’s Anaytics, said: “The Government has encouraged lending in an effort to support development of the country’s inadequate infrastructure. “Although these intentions are positive, delays to projects and other regulatory issues have weighed on revenues, and thus, developers’ ability to repay debt.” India and China have relied heavily on credit to drive GDP growth in the past 10 years, and on this metric, stand out as the most susceptible to a seizing in banking systems. India’s non-performing loan ratio increased from a low of 2.3 per cent in 2011 to around 4 per cent in 2013. Central bank data show publicly-owned Indian banks, which account for about 75 per cent of total lending, are largely responsible for the increase in non-performing loans. Non-performing loan ratios tend to be low during periods of strong credit and economic growth, as new loans have had less time to go bad. But after a prolonged period of debt accumulation, non-performing loan ratios tend to rise, said the subsidiary of Moody’s Corporation.

46 per cent of SMEs under credit stress, may default: India Ratings - Nearly half of bank loans extended to listed small businesses, having a revenue of under Rs. 300 crore, are under stress and there is a little possibility of improvement in the near future as their revenue growths will remain under pressure, according to a report. "As much as 46.3 per cent of bank loans extended to listed small and medium companies (SMEs) are in significant stress ... at least one out of four such companies may face a challenge in servicing even interest," India Ratings said in a note. Stating that SMEs are the "first casualty" in the downturn, the report said their revenue growth slipped into the single-digit since FY11, while the same happened for large corporates only from FY13. The agency warned that the median revenue of SMEs is unlikely to improve in the next 12-18 months. The report said smaller companies have a lower bargaining power as compared to the bigger ones, and pointed at the gap of 10-12 per cent in the pre-tax margins between the two groups. The India Ratings report said a reduction in the working capital days of large corporates was essential for conditions at SMEs to improve.

Slowdown puts 1bn middle class at risk - FT.com: Almost a billion people in the developing world are at risk of slipping out of the ranks of a nascent middle class, according to FT analysis, raising questions about the durability of the past 30 years’ remarkable march out of poverty. Rising inequality and slower global growth raise issues for businesses that have been investing heavily in emerging markets. One of the biggest questions confronting governments is what slower growth will mean for the creation of a solid middle class in countries such as China and India, which many are counting on to drive the global economy in the 21st century. The IMF last week warned that the world could face years of below-par growth, while economists from the World Bank also cautioned that growth of developing economies was likely to average 2-2.5 percentage points less than that seen before the 2008 global financial crisis. The Asian Development Bank has defined the entry point to the new middle class as the $2 per day poverty line, adjusting for purchasing power, while other economists have argued that a more robust definition begins at $10 per day. But analysis by the FT of World Bank income distribution data from 122 developing countries since the 1970s makes clear that most of the millions who have risen out of poverty in recent decades are sitting in what is best described as a “fragile middle” between those two lines. There were 2.8bn people – 40 per cent of the world’s population – living on $2-$10 a day in the developing world in 2010, the most recent year for which data are available. Moreover, many of those lifted out of poverty remain in an even tighter band only just above the $2 per day line. There were 952m people earning $2-$3 a day in the developing world in 2010, according to the FT analysis, a vulnerable segment that has grown more quickly than any other across the income spectrum.

West approves $3.2 billion package for Ukraine: The European Union’s Foreign Affairs Council has approved a mid-term loan of $1.38 billion and an additional $848 million in micro-financial aid for Ukraine, while the U.S. signed an agreement with the Ukrainian government on providing another $1 billion. This means Kyiv is about to receive $3.23 billion. "[We] welcome the adoption of the EU Commission proposal on autonomous trade measures for Ukraine [and] additional macrofinancial assistance of 1 billion euro," EU Commissioner for Enlargement and Neighbourhood Policy Stefan Fule said on April 14 on Twitter. Aid is intended to contribute to covering Ukraine's urgent balance-of-payments needs as identified in the government's economic program supported by the IMF. The trade measures will come in effect on April 23. The news about $1 billion package from the U.S. came from Ukraine’s Prime Minister Arseniy Yatsenyuk who told about the agreement signed in Washington D.C. between American and Ukrainian governments. Ukrainian delegation is currently negotiating with the International Monetary Fund about $14-18 billion bailout in 2014-2015. Oleksandr Shlapak, Ukraine's finance minister, told Bloomberg TV on April 11 that he expects the IMF to provide $7 billion this year. However, IMF earlier said in a statement that fund’s package may come as a key opening access to wider amount of financial help from the West reaching as much as $27 billion. Russia claims Ukraine owes it $2.2 billion for the gas supplies. Kyiv also has to repay as much as $10 billion of direct government debt this year, while state oil and gas monopoly Naftogaz’s eurubond worth $1.6 billion matures in September.

US Pays Half Of Gazprom's Overdue Invoice With $1 Billion Ukraine Loan Guarantee With Ukraine no longer paying for Russian gaz, and with Gazprom making it clear Kiev has to a) first pay the overdue $2+ billion in invoice and then b) prepay some $5 billion in gas until the end of the year of Europe gets it, it was only a matter of time before the US Treasury stepped in and paid off part or all of Gazprom's demands. That time is now, when moments ago Jack Lew announced a $1 billion loan guarantee for Ukraine - very much the same way that the US provided billions in loan guarnatees for the now long overthrown Mursi regime in Egypt. And in other news, many more "costly" and "damaging" US sanctions are surely headed Russia's way any second now.

Ukrainian banks quit Crimea — Banks are packing up and leaving Crimea as Kiev prepares sanctions against Ukrainian companies operating on the Black Sea peninsula. Ukraine’s parliament is due to approve Tuesday legislation that will prohibit any state-regulated economic activity, including banking, in Crimea. Kiev will provide companies with licensing and certification, and keeping branches open in Crimea puts them at risk. The threat from Kiev has so far worked on banks, as the new legislation will punish any differences between Russian and Ukrainian banking laws. More than 20 Ukrainian banks with 1,022 branches were operating in Crimea before it voted to leave Ukraine and join Russia. The National Bank of Ukraine said the banking sector was worth between $1.7-1.9 billion (20-22 billion hryvnia). As of April 17, Alfa Bank Ukraine, which is part-owned by Russian billionaire Mikhail Fridman, will close its doors, as it can no longer legally operate under the new legislation. “Alfa Bank no longer can work within the legal framework of the new Ukrainian legislation, and doesn’t have a legal basis for continued operations and provision of banking services in the territory of Crimea,” the bank’s press service said.

Invading Crimea Has Harmed Russia’s Economy - The invasion of Crimea may have cost Russia a lot more than it expected:Russia’s economy has been hit hard by the turmoil in neighboring Ukraine, Kremlin officials said Wednesday, as pro-Russia separatists battled to take over more territory in Ukraine’s east — and potentially add to Moscow’s economic burden. Russia’s annexation of Ukraine’s Crimea region last month and the instability it created in Russian financial markets were cited by government officials for record capital flight and sharply downgraded growth forecasts for the country. Finance Minister Anton Siluanov said that instead of projected 2.5% growth this year, Russia’s economy might show no growth at all. Russia’s economic slide has accelerated since a rebellion in Ukraine ousted President Viktor Yanukovich, a Kremlin ally, in late February. Russian President Vladimir Putin then sent troops to Crimea, claiming that the ethnic Russian majority there was in danger from the opposition politicians who took power in Kiev, the Ukrainian capital.U.S. and European sanctions to punish Russia for occupying and annexing Crimea have so far targeted only a few dozen officials and businessmen. But the prospect of broader penalties, such as a Western boycott of Russian oil and gas, have scared investors into cashing out their ruble-denominated assets for hard currency and taking their money abroad. Russia’s foreign exchange reserves were drained of a record $63 billion in the first quarter of the year, Economic Development Minister Alexei Ulyukayev said Wednesday in an address to the lower house of the parliament.

The I.M.F.’s Data Disagree With the NYT on the State of Russia’s Economy - Dean Baker - The NYT headlined a piece on the dismal state of Russia's economy, "Russia economy worsens even before sanctions hit." The piece goes on to describe an economy in decline telling readers about Russians moving abroad and storing cash in safe deposit boxes and foreign currencies. It reports: "Russia’s $2 trillion economy was suffering from stagflation, that toxic mix of stagnant growth and high inflation typically accompanied by a spike in unemployment. In Russia, joblessness remains low, but only because years of population decline have produced a shrunken, inadequate labor force."The data from the I.M.F. tell a somewhat different picture. While growth has slowed in the last two years, per capita income has more than doubled in the country since Vladimir Putin took office in 1998. The NYT may not like Russia's "shrunken inadequate labor force," but members of this shrunken, inadequate labor force probably care more about the unemployment rate than the NYT's condemnations. The I.M.F. projects an inflation rate of 6.2 percent for both this year and next. This is high for members of the 2.0 percent inflation cult that occupies central banks in the west and top economics departments, but folks familiar with economic data know that many countries have had long stretches of healthy growth with higher inflation rates. The I.M.F. reports that it has a deficit of less than 1.0 percent of GDP and its debt-to-GDP ratio have been on a downward course. It has a current account surplus. Furthermore, the I.M.F. shows that investment is almost 24 percent of GDP. This compares to less than 20 percent in the United States.

US financial showdown with Russia is more dangerous than it looks, for both sides - Telegraph: The US Treasury faces a more formidable prey with Russia, the world's biggest producer of energy with a $2 trillion economy, superb scientists and a first-strike nuclear arsenal. The United States has constructed a financial neutron bomb. For the past 12 years an elite cell at the US Treasury has been sharpening the tools of economic warfare, designing ways to bring almost any country to its knees without firing a shot. The strategy relies on hegemonic control over the global banking system, buttressed by a network of allies and the reluctant acquiescence of neutral states. Let us call this the Manhattan Project of the early 21st century. "It is a new kind of war, like a creeping financial insurgency, intended to constrict our enemies' financial lifeblood, unprecedented in its reach and effectiveness," says Juan Zarate, the Treasury and White House official who helped spearhead policy after 9/11. “The new geo-economic game may be more efficient and subtle than past geopolitical competitions, but it is no less ruthless and destructive,” he writes in his book Treasury's War: the Unleashing of a New Era of Financial Warfare. Bear this in mind as Washington tightens the noose on Vladimir Putin's Russia, slowly shutting off market access for Russian banks, companies and state bodies with $714bn of dollar debt (Sberbank data).

The Yield Curve and Recessions – Against US-Centricism - Philip Pilkington - One of the nicest stylized facts in applied economics is that if the Fed inverts the yield curve it will cause a recession. Inverting the yield curve basically means that the Fed hikes the short-term interest rate goes higher than the long-term interest rate. In theory this should lead to long-term lending drying up, investment falling significantly (usually in housing and inventories) and, ultimately, a recession. The track record of this as an indicator of recessions in the US is too impressive to dismiss. Take a look at the chart below. The shaded areas are recessions. As you can see, every time the short-term interest rate (blue line) climbs about the long-term interest rate (red line) we see a recession within around 12 months or so. The question, however, is whether this is universal economic constant. And when we turn to the data from other countries we quickly see that it is not. All the data that follows if from the St. Louis Fed but I have done the graphs myself so that I could include lines indicating British and Japanese recessions. Okay, so let’s take the UK first. This graph is pretty rough but the green lines are the starts of recessions and the thinner black lines are points when the short-term interest rate rose above the long-term interest rate without causing a recession. The short-term interest rate is the blue line and the long-term interest rate is the red line. As we can see, the story here is a bit more complicated than in the US. Only three out of the five recessions were precipitated by an inverted yield curve. Meanwhile the yield curve inverted seven times without causing a recession. This does not bode well for the notion that this correlation might be constant across time and space.

Out of Ammo? The Eroding Power of Central Banks - Once every six weeks, the most powerful players in the global economy meet on the 18th floor of an ugly office building near the train station in the Swiss city of Basel. The group includes United States Federal Reserve Chair Janet Yellen and her counterpart at the European Central Bank (ECB), Mario Draghi, along with 16 other top monetary policy officials from Beijing, Frankfurt, Paris and elsewhere. The attendees spend almost two hours exchanging views in a debate chaired by Bank of Mexico Governor Agustín Carstens. Waiters serve an exquisite meal and expensive wine as the central bankers talk about the economy, growth and market prices. No one keeps minutes, but the world's most influential money managers are convinced that the meetings help expand their knowledge in important ways. "We learn what makes our counterparts tick," says one attendee. These closed-door meetings, which are held on Sunday evenings, have a long tradition. But ever since many central banks lowered their interest rates to almost zero, bought up sovereign debt and rescued banks, a new, critical undertone has crept into the dinner conversations. Monetary experts from emerging economies complain that the measures taken by Europeans and Americans are pushing unwanted speculative money their way. Western central bankers say they have come under growing political pressure. And recently, when the host of the meetings -- head of the Basel-based Bank for International Settlements Jaime Caruana -- speaks in one of his rare public appearances, he talks about "chronic post-crisis weakness" and "risk." Monetary institutions, says Caruana, are at "serious risk of exhausting the policy room for manoeuver over time." These are unusual words, especially now that the world's central bankers, five years after the Lehman crash, are more powerful than ever. They set interest rates and control the money supply, oversee governments and banks and, like Bank of England Governor Mark Carney, are treated a bit like movie stars by the public.

ECB preparing to unleash unconventional monetary policy - FT.com: Mario Draghi has signaled that the European Central Bank is getting ready to unleash new unconventional monetary policy in a bid to fight low inflation. Speaking after the spring meetings of the International Monetary Fund in Washington on Saturday, the ECB president said the strengthening of the euro “requires further monetary stimulus”. His words came after he was pressurized all weekend over the dangers of allowing inflation to slide lower – by the IMF, finance ministers and central bank governors from all over the world. European central bankers have also used the weekend’s meetings in Washington to press the message that if the ECB takes further action, it is more likely to cut interest rates, possibly into negative territory, than commence a quantitative easing programme. In comments to journalists, Mr Draghi reiterated the ECB’s current economic forecasts which show a gradually recovering economy, but with stubbornly high unemployment that is pulling inflation lower. Focusing on the exchange rate, he reiterated that the ECB does not have a target level for the euro, but its appreciation over the past year “was important for price stability”. “The strengthening of the exchange rate would require – to make our monetary stance equally accommodative – further monetary policy accommodation,” Mr Draghi said, adding, “The strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for us”.

Draghi’s Patience Snaps on Euro as ECB Threatens Response - Mario Draghi’s patience with the euro has snapped. “The strengthening of the exchange rate requires further monetary stimulus,” European Central Bank President Draghi told reporters in Washington on April 12. “That’s an important dimension for our price stability.” The warning, which prompted the biggest drop in the single currency in three weeks, marked the strongest stance yet taken by Draghi since he and fellow policy makers began complaining in early March about the euro’s rise. With inflation at about a quarter of the ECB’s goal, the currency’s almost 6 percent gain against the dollar in the past year is further jeopardizing price stability by cheapening imports and hurting exporters. The elevated rhetoric, echoed by other ECB officials, was a theme of weekend meetings of the International Monetary Fund and World Bank that global policy makers used to urge European officials to address lackluster inflation before it turns into Japanese-style deflation.

The Greek miscalculation - REPUTATIONALLY speaking, the European Union has had better moments (though Russia is doing its best to restore the appeal of linkages to the west). Thanks to the crisis in the euro zone, many of the EU's economies remain mired in near-recession conditions almost seven years after the first rumblings of global financial trouble. Anti-EU parties are on the rise. Just last week Britain's Institute of Economic Affairs awarded a €100,000 ($140,000) prize to the winner of a contest to design the best plan for British success after "Brexit": Britain's hypothetical departure from the union. The sentiments aren't that difficult to comprehend; in addition to recent economic troubles there is the general dissatisfaction with the perceived impositions of eurocrats in Brussels: distant, unresponsive, foreign busybodies. And sadly for the EU, people seem to take its long-run economic benefits for granted, or assume there simply haven't been any. That is because the counterfactual—a world in which the union never formed—is impossible to observe. And that fact has bedeviled economists' attempts to figure out just how important a half century's worth of economic integration, in breadth and depth, has been to the European economy. A new piece of research, presented at last week's Royal Economic Society conference in Manchester, uses a novel approach to try to overcome that hardship, however. The paper suggests not only that economists' intuition—that integration has been beneficial—is right, but that the gains are in most cases quite substantial.

This could be the moment for Greece to default - FT.com: While the financial world is celebrating the Greek return to the bond markets, I am asking myself this question: is this a good time for Greece to default on its foreign debt? It is not a subject of polite conversion in Brussels or Athens. Nor does it appear to be a popular subject for investors’ conferences. For the first time since the crisis Greece is in a position to default. It has a primary budget surplus – before interest payments. The European Commission has forecast the primary surplus to reach 2.7 per cent of gross domestic product this year, rising to 4.1 per cent in 2015. The Greek current account registered a first surplus. Greece is no longer dependent on foreign investors.Of course, just because you are in a position to default does not mean that you should. So how should one think about this? Greece is probably now close to the bottom of its economic slump, which started six years ago. Between 2008 and 2013 real GDP shrank by 23.5 per cent and investment by 58.4 per cent. The most recent labour force survey showed unemployment at 26.7 per cent in January. The rate of youth unemployment in 2013 stood at 60.4 per cent. Bank loans to businesses were down at an annual rate of 5.2 per cent in February. Non-performing loans have reached a level of 38 per cent of the total. Bank deposits are shrinking. More shocking than those relative changes are statistics that put the data in perspective. Yanis Varoufakis , a Greek political economist, recently produced a long list, of which I found the following most striking: of 2.8m Greek households, 2.3m have tax debts they cannot service; pensions are the main source of income for 48.6 per cent of families; and 3.5m employed people have to support 4.7m unemployed or inactive people. The Greek economy is not in recession. Nor is it recovering. It has collapsed.

Europe's Junk-Debt Market Peaks With Numericable's Planned Issuance - WSJ.com: Riskier companies are issuing debt at their fastest-ever clip in Europe, and now the market looks set to welcome its biggest offering on record. Monday, French cable operator Numericable Group SA started meeting with investors as it prepares to raise an equivalent of about 6 billion euros ($8.33 billion) from three chunks of high-yield, or junk, debt, denominated in both dollars and euros. Demand for high-yield bonds has remained rampant in Europe this year, reflecting record low interest rates that prompt investors to load up on riskier debt that offer chunkier returns. Junk-rated companies have raised about EUR17 billion from euro-denominated deals since January, the most at this stage of the year on record and almost a third more than at this time in 2013, the previous fastest start to a year, according to Dealogic. That demand is also allowing companies with sub-investment grade credit ratings to snag their lowest ever borrowing costs. The average yield for euro-denominated junk bonds hit 4% last week, a record low, according to a Markit index.

Blaming the Messengers, Euro Edition - Paul Krugman -- Aha. I missed this, from Jürgen Stark, which is one of the most amazing things I’ve ever seen written by a former central banker: It is likely we are living in an extended period of price stability. This is good news. It boosts real disposable income and will eventually support private consumption. Inflation expectations are well anchored, and there is no evidence households and companies are delaying purchases because of negative expectations. Warnings about outright deflation and calls for ECB action are misguided and irresponsible. The longer this discussion continues, and the more intense it becomes, the more likely the risk of a self-fulfilling prophecy. So, Stark begins by asserting that low inflation boosts real disposable income. That’s a zero-credit answer on any undergraduate exam: yes, low inflation makes income gains higher for any given rate of increase in nominal income, but low inflation reduces the rate of nominal income growth one for one. Now, it’s not true that low inflation has no effect; it increases the real value of debt, which is contractionary because debtors cut spending more than creditors raise it, and it raises real interest rates when nominal rates are near the zero lower bound. . But the real kicker is the claim that even talking about the possibility of deflation is irresponsible, because that can turn into a self-fulfilling prophecy. That’s right: if inadequate ECB action leads Europe into a Japan-style lost decade or two, it’s the fault of all those critics who warned that this might happen; if only everyone had kept clapping, everything would have been OK.

EU price rises slow, widening deflation threat - Consumer prices in the 28-member European Union rose at the slowest pace for four-and-a-half years in the 12 months to March, indicating that falling inflation rates are a problem for economies throughout the continent, and not just those that share the euro. The European Union's statistics agency Wednesday said consumer prices in the 18 nations that share the euro were 0.9% higher than in February, and 0.5% higher than in March 2013. That confirmed the preliminary estimate released late last month, and is the lowest annual rate of inflation since November 2009. Eurostat said the core rate of inflation--which strips out volatile items such as energy and food--slipped to 0.7% from 1.0% in February, matching the record low reached in December 2013. Eurostat also said the annual rate of inflation in the broader EU--which includes 10 countries that don't use the euro--fell to 0.6% from 0.8% in February, its lowest level since October 2009. Eurostat's figures show that five euro-zone members experienced declines in prices in the 12 months through March, while three members of the EU that don't use the euro shared the same experience. But other members were on the cusp, with four euro-zone members recording inflation rates below 0.5%, as did four EU members that don't use the euro. Of the EU's 28 members, only one had an inflation rate in excess of 1.5%: the U.K., where prices rose 1.6% in the 12 months to March. The slowdown in inflation is a mixed blessing. While it should help boost real incomes at a time of weak wage growth, it also raises the specter of deflation--a sustained and self-reinforcing fall in prices that can play havoc with public and private efforts to repay debts and risks bringing consumer spending to a halt.

ECB moving closer to unconventional policy - The ECB received another set of disappointing inflation reports today. For some time now the central bank has been betting on the fact the declining inflation figures were driven by food and energy, while the core CPI rate was recovering. Well, that didn't turn out to be the case, at least for now. With the euro remaining at lofty levels, the ECB is beginning to prepare the markets for new monetary stimulus, as the various officials discuss "unconventional" policy. Weidmann: BW: - After building a reputation as a nay-sayer on the European Central Bank’s Governing Council, the Bundesbank president’s [Jens Weidmann's] support for large-scale asset purchases marks a shift that helps the fight against deflationary threats. His tentative backing of quantitative easing will shore up its credibility as officials debate whether they need to implement it.Coeure: WSJ: - "Should further monetary accommodation be needed, it is reasonable to consider other operations aimed at lowering the term premium. This is where targeted asset purchases enter the toolset of monetary policy," Mr. [Benoit] Coeure said in prepared remarks to an International Monetary Fund conference.Nowotny: WSJ: - Mr. [Ewald] Nowotny, who is a member of the ECB’s governing council, signaled that his preference would be for any ECB stimulus to be geared toward Europe’s asset-backed securities market, which may in turn boost the flow of credit to the economy. He said he is open to setting a negative rate on bank deposits parked at the ECB, but raised doubts about the effectiveness of such a move. “We are preparing all the technical aspects of a range of possible interventions,” Mr. Nowotny told The Wall Street Journal on the sidelines of meetings of the International Monetary Fund.

Record unemployment with nearly half of EU’s jobless out of work for over a year -- Long-term unemloyment is at record levels in the European Union with nearly half of those out of work jobless for more than a year, new figures reveal. Of those unemployed in the EU, 47.5 percent have been in that position for more than 12 months, Eurostat data for 2013 shows. It means long-term unemployment in the union’s 28 member states is the highest it has been for at least a decade. The measure – long-term unemployment as a percentage of total unemployment – has risen sharply from 33.5 percent in 2009, to 47.5 percent last year. It was 45.4 percent in 2003. : “The big danger of this long-term unemployment is that it is likely to turn into persistent, structural unemployment as the recovery in the Eurozone in particular will be slow. This lowers growth in the medium term. “One of the key mistakes was not to support economic demand sufficiently: fiscal policy got tightened in the midst of the recession while the European Central Bank was reluctant to pursue monetary stimulus with the necessary boldness and is now getting 0.5 percent inflation in return. “The long-term unemployment is one reason why fiscal consolidation efforts in the eurozone might be self-defeating: the deficit reduction that you get in the short run will be compensated by lower growth/higher unemployment in the future, and hence larger deficits.”

Pain in Spain as bank warns of 10-year jobs blight and public debt leaps €8.1bn - Spanish unemployment could take 10 more years to return to the levels seen before the financial crisis, according to a report that paints a picture of an economy hampered by low wages, low skills and lack of investment in research. Spanish workers earn 20%-40% less than those in other leading European countries, according to the study by Spain's second-biggest bank, BBVA. The earnings gap is partly explained by very high unemployment, which BBVA said "derives from a labour market that functions substantially worse than in other countries". The bank found Spanish spending on research and development is 70% below the US or EU average, and said the economy suffered from low skills and a lack of technology in the workplace. "All of these differences derive from an inadequate legal and institutional system of incentives," the report said. The researchers forecast that even if employment increased at a rate of 2% it would take 10 years to reach 2007 levels. Calling for long-term "balanced, solid and inclusive" growth to bring per capita income in line with the US and eurozone competitors, the report urged Spain's traditionally small- and medium-sized firms to enlarge and seek international markets. "Large companies are more productive, have more human capital, survive longer, invest more in R&D and export more," it said, adding that this enlargement would only occur if legal, financial and fiscal obstacles were removed.

Austerity In Spain? Where? Public Debt Threatens to Exceed 100% of GDP in 2014 - EL Pais reports Spanish Public Debt Threatens to Exceed 100% of GDP in 2014 Via translation General government debt accumulated through February was 987.945 billion euros, an amount that represents 96.5% of gross domestic product (GDP). This represents a new record in the amount of money the state, communities, and the municipalities have to return to financial institutions and investment funds. In February alone, the government liabilities increased by 8.130 billion, up 8% from the previous month.The debt problem is not just that you have to pay, but the difficulty to stop the frenzied pace to growing-has risen from 37% of GDP in 2007 to 96.5% seven years later. If this pace continues, the liabilities of the government would scale up to 110% of GDP, an unknown dimension in the last century. Since the early twentieth century, when Spain had to attend entrained war debts of Cuba, the barrier was not exceeded 100%, according to the historical series of the IMF. The debt ended 2013 at 94% of GDP. The threat that public debt exceeds the red line of 100% of GDP grows as government is unable to decisively reduce the public deficit. The 2014 budget is expected to be in the red by 60.7 billion, 5.8% of GDP. In addition, the Executive will launch a new section of the Autonomous Liquidity Fund (FLA), liquidity to support to the regions, totaling 23 billion, representing about two-points of GDP. In total, the public debt will grow by about 80 billion, eight points of GDP during 2014. The level of liability of public institutions would reach 104% compared to 98.9% government projection earlier this year.

France denies wavering on deficit commitments (Reuters) - French officials said on Tuesday they had never wavered on EU-imposed budget targets, rejecting media reports they had tried earlier this month to lay the ground for renegotiation but had been slapped down by Brussels. Conservative newspaper Le Figaro reported on Tuesday that the Socialist government had no choice but to retreat from plans to renegotiate how fast it should cut its budget deficit after Brussels ruled out giving additional time. "At no moment did the president nor the prime minister nor myself ask or plead for extra time," Finance Minister Michel Sapin said in response to a question in parliament. On his first day in the job after a cabinet reshuffle earlier this month, Sapin said France wanted to revise the pace of its deficit reduction. His comments were widely interpreted as implying Paris wants a further extension, beyond an extra two years already granted to the end of 2015, to bring its deficit in line with an EU limit of 3 percent of national output. His remarks chimed with comments from President Francois Hollande who had said his government would have to convince its EU partners its reform efforts should be taken into account when judging Paris' respect for EU promises.

France Targets Welfare for Big Spending Cuts - France's new prime minister announced plans Wednesday to cut 21 billion euros ($29 billion) from state pensions, health care and the social safety net as a part of a 50 billion-euro effort to rein in the country's debt and deficit. Manuel Valls said his top priority is curbing France's government spending, which is among the highest in the world at 57 percent of the country's gross domestic product. But he vowed his Socialist-led government will maintain benefits for those with the lowest incomes. The plan is aimed to help France meet European Union deficit targets, boost its lackluster economy and bring down an employment rate now around 11 percent. "We cannot live beyond our means," Valls said after a Cabinet meeting. Under the plan, the central government will trim 18 billion euros and local governments another 10 billion euros. The announcement adds details to the commitment made earlier this year by President Francois Hollande, a fellow Socialist, to cut 50 billion euros in state spending, or about 4 percent of the total. It is the biggest state spending reduction in France in half a century.

Italy request to push back budget targets dismays Brussels -- Italy’s new government led by Matteo Renzi has raised concern in the European Commission by requesting an extra year to reach agreed budget targets, citing “exceptional circumstances” and the need to raise debt levels. Pier Carlo Padoan, finance minister, sent a written request to the commission on Wednesday as part of its 2014 economic and financial document requiring approval from Brussels, which formally replied that it would deliver its assessment on June 2. EU officials on Thursday privately conveyed their concerns to Rome. “Brussels is very upset,” commented one senior Italian official who asked not to be named. Officials in Brussels said the commission was expected to push back Rome’s demand for greater fiscal flexibility. “The Commission will be firm,” said a senior EU official. “Other member states, Germany on top of the list, will make it clear that we can’t allow any delays. Citing the “severe recession” that set Italy back in 2012 and 2013, Padoan wrote that Italy wanted to “deviate temporarily from the budget targets” and that because of “exceptional circumstances” the government had decided to accelerate the payment of arrears owed by the public to the private sector by €13 billion (Dh66 billion), which would increase the debt to GDP ratio in 2014.

How Do You Say "Nobody Could Have Predicted" In Swedish? - Paul Krugman - A correspondent points me to the news from Sweden, which has stopped flirting with deflation and moved right in. Here’s inflation excluding food, energy, tobacco, and alcohol: It’s amazing: Sweden, which at first weathered the crisis fairly well, and faced none of the institutional constraints of the euro area, has managed — completely gratuitously — to get itself into a deflationary trap. The Riksbank says, in effect, that nobody could have predicted this development. But of course its own former deputy governor — and my former colleague — Lars Svensson, more or less frantically warned that the Riksbank was making a terrible mistake by tightening money despite low inflation and lots of economic slack. His reward was increasing isolation, and eventually departure. You see, all the VSSPs — very serious Swedish people — knew that it was important to raise interest rates because, well, because. And getting out of the trap is going to be very hard.

Are The Swiss Going Crazy? $25 Minimum Wage Referendum In May - Most of our readers probably know what we think of minimum wages, but let us briefly recapitulate: there is neither a sensible economic, nor a sensible ethical argument supporting the idea. So when we saw that the Swiss will vote in a national referendum May 18 on whether to create a minimum wage of 22 francs ($25) per hour, or 4,000 francs a month, we were stunned... If Swiss voters agree to introducing a new minimum wage law, they would end up doing incalculable damage to Switzerland's entrepreneurial culture. At the moment, Switzerland is still one of the freest economies in the world. It has been extremely successful so far and its achievements would clearly be put at risk. Hopefully Switzerland's voters won't be swayed by union's arguments.

Bank of England Says Its QE Worked Better Than Thought - Did the Bank of England’s asset-purchase program have more pop than previously thought? A new paper from the Bank of England itself now argues it did. Past studies, such as this one from 2011 and this one from 2012, estimated the central bank’s first £200 billion ($336 billion) of bond buying, or “quantitative easing,” lifted U.K. gross domestic product by around 1.5% and raised the annual rate of inflation by around one percentage point. The BOE’s first phase of bond buying, known as QE1, lasted from March 2009 to Jan. 2010. A second phase, QE2, began in October 2011. In all, the bond buying over the two periods totaled £375 billion. A study took a different methodological approach and estimated QE1 in the U.K. lifted GDP by 2.5% and raised the level of prices by 4.2%. The authors noted that their work appears to show the easing had a bigger effect on inflation than other studies found, a finding they said could be a fluke. Economists have used a variety of techniques to model the effect of asset purchases in both the U.K. and the US, with differing results. Even though the BOE isn’t expected to do anymore easing, the paper’s findings are interesting, not least because Mr. Weale has sometimes sounded skeptical about the policy in the past. The bond-buying strategy remains controversial. A common criticism is that it pushes up asset prices and sends “hot” money scurrying across the globe in search of higher returns, causing problems for emerging markets in particular. The BOE paper looked briefly at this question. Surprisingly, the authors found no evidence that asset purchases boosted capital flows into emerging markets, a common complaint.

What did QE ever do for us? - More than five years after the start of the great QE experiment, agreement about what the asset buying scheme achieved is still thin on the ground. A new Bank of England paper from external MPC member Martin Weale released today tries to put a figure to how much QE boosted national output and inflation in the UK and the US. Its results are as follows:“At the median, an asset purchase shock that results in an announcement worth 1% of nominal GDP, leads a rise of about .36% (.18%) of real GDP and .38% (.3%) in CPI in the US (UK). These findings are encouraging, because they suggest that asset purchases can be effective in stabilising output and prices” Here is how it compares to previous studies:As you can see the results are broadly in line with previous papers in the case of all variables, except for UK inflation. However, the authors play down this difference and argue: this finding is, of course, subject to considerable uncertainty and the difference is probably not statistically significantThose convinced of the inflationary impact of QE will probably not agree. Not to mention the questions hanging over how exactly the Fed and the BoE are going to unwind their experiment… The full paper is online on the Bank’s website.

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browsing GGO with internet explorer

i recently encountered a PC running IE without tabs, and realized what a disadvantage using it that way is...

i have no clue as to how other browsers work, but if you're using IE7 or IE8 you should be using tabbed browsing, especially to save yourself several reloads of a page like this which you'd be linking from...to enable tabbed browsing, go to tools, then "internet options" and click "change how webpages are displayed in tabs"...then check "enable tabbed browsing" (this requires a restart to take effect) & btw, i have warnings, groups, and quick tabs enabled, and have popups set to also open in a new tab, rather than a new window...

with tabbed browsing, you can remain on this page and open those links that you want to read in adjacent tabs in the same window, without leaving this site...you do this by right clicking and then click "open in new tab" or simply by hovering over the link and pressing down on the middle mouse button (the scroll wheel)...those links will open in the same window without leaving this page, and you access them later by clicking each of those tabs right below your toolbar (each tab also has its separate 'X' to close it)...